WGU D103
Intermediate Accounting I
OA2 (Units 5-7)
Actual Questions with Verified Answers
Pass the Exam with Confidence
What You Will Get:
➢100 OA Exam Questions w/ Answers
➢ Complete Units 5, 6, and 7
➢ Unit 5 - Time Value of Money = 20%
➢ Unit 6 - Cash & Receivables = 40%
➢ Unit 7 - Inventory = 40%
Take and pass the OA :)
, PREVIEW PAGES BELOW
Get the Complete PDF After Purchase
If you require further clarification or in need of any study
resources, feel free to Message me.
,A customer signs a noninterest-bearing note, promising to pay the company
$11,664 in two years. The payment amount is based on an annual interest rate of
8%, which the company believes is appropriate, resulting in the present value of
the note of $11,664 × 0.85734 = $10,000.
Which amount should the company record as sales revenue from this transaction
to be in accordance with generally accepted accounting principles (GAAP)?
The note is recorded at its present value of $10,000. No calculation is required.
Accounting Rule: A note received in exchange for goods is valued at its present value.
A company requires $8,000 cash in a savings account earning 2% interest at the
end of the year. Assuming an annual interest rate of 2% is appropriate, the
implied annual interest is $8,000 × 0.02 = $160, and the present value of the
savings is $8,000 × 0.98039 = $7,843.
What amount should be deposited into the savings account at the beginning of
the year?
The present value of $8,000 at the beginning of the year is $7,843. No calculation is
required.
This is a single-sum problem that requires determining the unknown present value of a
known single sum of money in the future that is discounted for a certain number of
periods at a certain interest rate.
Accounting Rule: Present value is the amount that must be invested now to produce a
known future value. It is always a smaller amount than the given future value.
A company collects $1,500 of rent from a tenant at the end of the year. The
company invests the rent money in an investment earning 4% interest per year.
Assuming a 4% annual interest rate is appropriate, the implied annual interest is
$1,500 × 0.04 = $60, and the present value of the rent is $1,500 × 0.96154 = $1,442.
What is the discounted value of this rent at the beginning of Year 1?
Discounting is the process of reducing the face/principal amount to a present value. The
present value of $1,500 at the beginning of the year is $1,442. No calculation is
required.
,This is a single-sum problem that requires determining the unknown present value of a
known single sum of money in the future that is discounted for a certain number of
periods at a certain interest rate.
Accounting Rule: Present value is the amount that must be invested now to produce a
known future value. It is always a smaller amount than the given future value.
A company issues a five-year zero-interest-bearing note for a new lathe it
purchased for $25,000. The market rate of interest at the time the note was issued
is 4%. Assuming an annual interest rate of 4% for five years is appropriate, the
present value of the principal is $25,000 × 0.82193 =
$20,548. Assuming an annual interest rate of 5% for 4 years is appropriate, the
present value of the principal is $25,000 × 0.82270 =
$20,568.
What amount should be recorded for the cost of the lathe?
The lathe is recorded at its present value of $20,548. No calculation is required.
Accounting Rule: An asset acquired in exchange for a noninterest-bearing note is
valued at the present value of the note.
Equipment is exchanged for a noninterest-bearing note. Payment of $20,000 on
the note is to be made in one year. The market rate for notes of similar risk is 5%.
Assuming an annual interest rate of 5% is appropriate, the present value of the
principal is $20,000 × 0.95238 = $19,048. Assuming that a semiannual interest rate
of 2.5% is appropriate, the present value of the principal is ($20,000/2) × 1.92742 =
$19,274.
What amount should be recorded for the purchase of this equipment?
The equipment is recorded at its present value of $19,048. No calculation is required.
Accounting Rule: An asset acquired in exchange for a noninterest-bearing note is
valued at the present value of the note.
Company A sells land to Company B for $100,000. Company A takes a note from
Company B that is due in two years. Assuming an annual interest rate of 5% is
appropriate, the implied annual interest is $100,000
× 0.05 = $5,000, and the present value of the note is $100,000 × 0.90703
,= $90,703.
What amount should Company A record for the sale?
The note is recorded at its present value of $90,703. No calculation is required.
Accounting Rule: A note received in exchange for property is valued at its present value.
Company A sells a parcel of land to Company B in exchange for a note receivable.
The terms of the note require Company B to make a single payment of $600,000 in
two years. Using a 10% interest rate, the implied annual interest is $600,000 × 0.10
= $60,000, and the present value of the note is $600,000 × 0.82645 = $495,870.
What amount must Company A consider as proceeds from the sale of the land in
order to calculate gross profit or gain/loss on the sale, and be in accordance with
generally accepted accounting principles (GAAP)?
The note is recorded at its present value of $495,870. No calculation is required.
Accounting Rule: A note received in exchange for property is valued at its present value.
A company performs services for a customer in exchange for a noninterest-
bearing note. The customer agrees to make a payment of$100,000 in three years.
Using a 5% interest rate, the implied annual interest is $100,000 × 0.05 = $5,000,
and the present value of the note is $100,000 × 0.86384 = $86,384.
What amount should the company record as service revenue from this
transaction to be in accordance with generally accepted accounting principles
(GAAP)?
The note is recorded at its present value of $86,384. No calculation is required.
Accounting Rule: A note received in exchange for service is valued at its present value.
A company has the following cash balances:
Large bank: $ 127,000
Small bank: $ 17,000
,Continental bank: $ (42,000)
Petty cash: $ 450
3-month treasury bill: $ 60,000
CD maturing in 18 months: $ 100,000
What is the amount of cash and cash equivalents that should be reported?
$204,450 = $127,000 + $17,000 + $450 + $60,000
Accounting Rule: Cash is coin, currency, bank deposits including checking and savings
accounts, and negotiable instruments such as money orders, cashiers’ checks, personal
checks, and bank drafts. Petty cash funds and change funds are also cash.
Cash equivalents is treasury bills, commercial paper, money market funds, money
market savings certificates, certificates of deposit, and similar types of deposits with
liquidity of less than 3 months (90 days).
The bank overdraft for Continental bank is reported as a current liability. It cannot be
offset against the other banks’ cash account. However, the overdraft could be offset if
the company had another cash account with Continental bank.
A company has the following items at year-end:
cash in bank: $30,000
petty cash: $500
short-term paper with maturity of two months: $7,000
postdated checks: $2,000
What amount should be reported as cash and cash equivalents in the balance
sheet?
$37,500 = $30,000 + $500 + $7,000
Accounting Rule: Cash is coin, currency, bank deposits including checking and savings
accounts, and negotiable instruments such as money orders, cashiers’ checks, personal
checks, and bank drafts. Petty cash funds and change funds are also cash.
Cash equivalents is treasury bills, commercial paper, money market funds, money
market savings certificates, certificates of deposit, and similar types of deposits with
liquidity of less than 3 months. (Note: 3 months is interpreted to mean 90 days or less.)
Postdated checks are reported as receivables.
,A company has the following items at year-end:
cash in bank - checking account of $18,500
cash on hand of $500
post-dated checks received totaling $3,500
certificates of deposit totaling $124,000
How much should be reported as cash in the balance sheet?
$19,000 = $18,500 + $500
Accounting Rule: Cash is coin, currency, bank deposits including checking and savings
accounts, and negotiable instruments such as money orders, cashiers’ checks, personal
checks, and bank drafts. Petty cash funds and change funds are also cash.
Cash equivalents is treasury bills, commercial paper, money market funds, money
market savings certificates, certificates of deposit, and similar types of deposits with
liquidity of less than 3 months (90 days).
Postdated checks are reported as receivables.
A company has the following items at year-end:
cash in bank: $35,000
petty cash: $300
short-term paper with maturity of 120 days: $5,500
postdated checks: $1,400
How much should be reported as cash in the balance sheet?
$35,300 = $35,000 + $300
Accounting Rule: Cash is coin, currency, bank deposits including checking and savings
accounts, and negotiable instruments such as money orders, cashiers’ checks, personal
checks, and bank drafts. Petty cash funds and change funds are also cash.
Cash equivalents is treasury bills, commercial paper, money market funds, money
market savings certificates, certificates of deposit, and similar types of deposits with
liquidity of less than 3 months (90 days).
Postdated checks are reported as receivables.
,A company has cash in the bank of $20,000, restricted cash in a separate account
of $3,000, and a bank overdraft in an account at another bank of $1,000.
How much should the company report in cash?
$20,000
Accounting Rule: Cash is coin, currency, bank deposits including checking and savings
accounts, and negotiable instruments such as money orders, cashiers’ checks, personal
checks, and bank drafts.
The bank overdraft is reported as a current liability. It cannot be offset against the other
bank’s cash account. However, the overdraft could be offset if the company had it in the
same bank where it has the $20,000.
Restricted cash refers to cash that is held by a company for specific reasons and is,
therefore, not available for immediate ordinary business use. It appears as a separate
item from cash and cash equivalents on the balance sheet. Restricted cash can be
classified as a current (short-term) or non-current (long-term) asset depending on when
the cash is expected to be used.
A company has cash in the bank of $10,000, restricted cash in a separate account
of $1,000 deemed immaterial, and a bank overdraft of $3,000 in the same bank
that houses the $10,000 in cash.
What amount should this company report as cash in the balance sheet?
$8,000 = $10,000 + $1,000 - $3,000
Accounting Rule: Cash is coin, currency, bank deposits including checking and savings
accounts, and negotiable instruments such as money orders, cashiers’ checks, personal
checks, and bank drafts.
The bank overdraft can be offset against the $10,000 since that cash account is in the
same bank as the overdraft.
Since the restricted cash is immaterial in amount, it doesn’t need to be segregated from
cash.
A company has the following items:
Cash: $ 10,000
Petty cash: $ 100
Short term paper: $ 1,500
,What is the cost of goods sold (COGS) and the value of ending inventory for
October?
$4,975 = COGS: (350 x $8.50) + (250 x $8.00). Ending Inventory: $8,225 = (200 x $7) +
((500 -250) x 8) + ((600 - 350) x $8.5) + (300 x $9)
Accounting Rule: The specific identification inventory valuation method tracks every
single item in an inventory individually from the time it enters the inventory until the time
it leaves it. This inventory method is suitable for companies with expensive, easily
distinguishable low-volume merchandise such as jewelry, fur coats, automobiles, unique
furniture, special manufactured made products.
A company that used the periodic inventory system overstated its beginning
inventory but correctly stated its ending inventory.
What will be the effect of this error on the financial statements at the end of the
period?
The cost of goods sold will be overstated and gross profit/net income will be
understated. The ending inventory on the balance sheet is correct according to the
facts.
Accounting Rule: Inventory errors come in two forms: understatements or
overstatements.
Beginning inventory errors affect only the income statement because cost of goods sold
is calculated using beginning inventory + purchases – ending inventory.
Ending inventory errors affect both the income statement and the balance sheet and will
affect two periods because 1) the ending inventory of one period will become the
beginning inventory for the following period, and 2) the calculation of the cost of goods
sold is beginning inventory + purchases – ending inventory.
As shown in the table below, errors in calculating beginning inventory have
a direct effect on cost of goods sold and inverse effect on gross profit and net income.
On the other hand, errors in calculating ending inventory have an inverse effect on
cost of goods sold and a direct effect on gross profit and net income. Errors in
purchases have the same effect as errors in beginning inventory, that is a direct effect
on cost of goods sold and inverse effect on gross profit and net income
company did not record the credit purchases of inventory and did not include this
item in the ending inventory balance.
, What is the effect of this on the financial statements?
Inventory is understated; net income is unaffected. Since both the purchases and
ending inventory are understated, the two errors cancel each other out, and there is no
effect on cost of goods sold and net income.
Beginning Inventory not affected
(+) Purchases understated
(-) Ending Inventory understated
Cost of Goods Sold not affected
A company uses the periodic inventory costing system. The company includes
goods shipped to them f.o.b. shipping point in purchases, but not ending
inventory.
What is the effect on the current ratio?
a. no effect.
b. understated.
c. overstated.
d. there is not enough information to determine the effect.
b. understated.
Ending inventory is understated because the purchase items were not included in the
ending inventory count. Accounts payable is not affected since the items were recorded
in the Purchases account and Accounts Payable account.
The current ratio is understated. The current ratio formula is current assets/current
liabilities. Ending inventory is a current asset and accounts payable is a current liability.
Since the numerator is understated and the denominator is correct, the current ratio is
understated. For example, assume a correct current ratio of = 2.5. Now, assume
current assets is understated by 10. The current ratio now is =2. Decreasing the
numerator lowers the current ratio.
A company overestimates its ending inventory for a year.
What effect will this have on the company's working capital and current ratio?
a. understatement of working capital and overstatement of current ratio.
b. overstatement of working capital and understatement of current ratio.
Intermediate Accounting I
OA2 (Units 5-7)
Actual Questions with Verified Answers
Pass the Exam with Confidence
What You Will Get:
➢100 OA Exam Questions w/ Answers
➢ Complete Units 5, 6, and 7
➢ Unit 5 - Time Value of Money = 20%
➢ Unit 6 - Cash & Receivables = 40%
➢ Unit 7 - Inventory = 40%
Take and pass the OA :)
, PREVIEW PAGES BELOW
Get the Complete PDF After Purchase
If you require further clarification or in need of any study
resources, feel free to Message me.
,A customer signs a noninterest-bearing note, promising to pay the company
$11,664 in two years. The payment amount is based on an annual interest rate of
8%, which the company believes is appropriate, resulting in the present value of
the note of $11,664 × 0.85734 = $10,000.
Which amount should the company record as sales revenue from this transaction
to be in accordance with generally accepted accounting principles (GAAP)?
The note is recorded at its present value of $10,000. No calculation is required.
Accounting Rule: A note received in exchange for goods is valued at its present value.
A company requires $8,000 cash in a savings account earning 2% interest at the
end of the year. Assuming an annual interest rate of 2% is appropriate, the
implied annual interest is $8,000 × 0.02 = $160, and the present value of the
savings is $8,000 × 0.98039 = $7,843.
What amount should be deposited into the savings account at the beginning of
the year?
The present value of $8,000 at the beginning of the year is $7,843. No calculation is
required.
This is a single-sum problem that requires determining the unknown present value of a
known single sum of money in the future that is discounted for a certain number of
periods at a certain interest rate.
Accounting Rule: Present value is the amount that must be invested now to produce a
known future value. It is always a smaller amount than the given future value.
A company collects $1,500 of rent from a tenant at the end of the year. The
company invests the rent money in an investment earning 4% interest per year.
Assuming a 4% annual interest rate is appropriate, the implied annual interest is
$1,500 × 0.04 = $60, and the present value of the rent is $1,500 × 0.96154 = $1,442.
What is the discounted value of this rent at the beginning of Year 1?
Discounting is the process of reducing the face/principal amount to a present value. The
present value of $1,500 at the beginning of the year is $1,442. No calculation is
required.
,This is a single-sum problem that requires determining the unknown present value of a
known single sum of money in the future that is discounted for a certain number of
periods at a certain interest rate.
Accounting Rule: Present value is the amount that must be invested now to produce a
known future value. It is always a smaller amount than the given future value.
A company issues a five-year zero-interest-bearing note for a new lathe it
purchased for $25,000. The market rate of interest at the time the note was issued
is 4%. Assuming an annual interest rate of 4% for five years is appropriate, the
present value of the principal is $25,000 × 0.82193 =
$20,548. Assuming an annual interest rate of 5% for 4 years is appropriate, the
present value of the principal is $25,000 × 0.82270 =
$20,568.
What amount should be recorded for the cost of the lathe?
The lathe is recorded at its present value of $20,548. No calculation is required.
Accounting Rule: An asset acquired in exchange for a noninterest-bearing note is
valued at the present value of the note.
Equipment is exchanged for a noninterest-bearing note. Payment of $20,000 on
the note is to be made in one year. The market rate for notes of similar risk is 5%.
Assuming an annual interest rate of 5% is appropriate, the present value of the
principal is $20,000 × 0.95238 = $19,048. Assuming that a semiannual interest rate
of 2.5% is appropriate, the present value of the principal is ($20,000/2) × 1.92742 =
$19,274.
What amount should be recorded for the purchase of this equipment?
The equipment is recorded at its present value of $19,048. No calculation is required.
Accounting Rule: An asset acquired in exchange for a noninterest-bearing note is
valued at the present value of the note.
Company A sells land to Company B for $100,000. Company A takes a note from
Company B that is due in two years. Assuming an annual interest rate of 5% is
appropriate, the implied annual interest is $100,000
× 0.05 = $5,000, and the present value of the note is $100,000 × 0.90703
,= $90,703.
What amount should Company A record for the sale?
The note is recorded at its present value of $90,703. No calculation is required.
Accounting Rule: A note received in exchange for property is valued at its present value.
Company A sells a parcel of land to Company B in exchange for a note receivable.
The terms of the note require Company B to make a single payment of $600,000 in
two years. Using a 10% interest rate, the implied annual interest is $600,000 × 0.10
= $60,000, and the present value of the note is $600,000 × 0.82645 = $495,870.
What amount must Company A consider as proceeds from the sale of the land in
order to calculate gross profit or gain/loss on the sale, and be in accordance with
generally accepted accounting principles (GAAP)?
The note is recorded at its present value of $495,870. No calculation is required.
Accounting Rule: A note received in exchange for property is valued at its present value.
A company performs services for a customer in exchange for a noninterest-
bearing note. The customer agrees to make a payment of$100,000 in three years.
Using a 5% interest rate, the implied annual interest is $100,000 × 0.05 = $5,000,
and the present value of the note is $100,000 × 0.86384 = $86,384.
What amount should the company record as service revenue from this
transaction to be in accordance with generally accepted accounting principles
(GAAP)?
The note is recorded at its present value of $86,384. No calculation is required.
Accounting Rule: A note received in exchange for service is valued at its present value.
A company has the following cash balances:
Large bank: $ 127,000
Small bank: $ 17,000
,Continental bank: $ (42,000)
Petty cash: $ 450
3-month treasury bill: $ 60,000
CD maturing in 18 months: $ 100,000
What is the amount of cash and cash equivalents that should be reported?
$204,450 = $127,000 + $17,000 + $450 + $60,000
Accounting Rule: Cash is coin, currency, bank deposits including checking and savings
accounts, and negotiable instruments such as money orders, cashiers’ checks, personal
checks, and bank drafts. Petty cash funds and change funds are also cash.
Cash equivalents is treasury bills, commercial paper, money market funds, money
market savings certificates, certificates of deposit, and similar types of deposits with
liquidity of less than 3 months (90 days).
The bank overdraft for Continental bank is reported as a current liability. It cannot be
offset against the other banks’ cash account. However, the overdraft could be offset if
the company had another cash account with Continental bank.
A company has the following items at year-end:
cash in bank: $30,000
petty cash: $500
short-term paper with maturity of two months: $7,000
postdated checks: $2,000
What amount should be reported as cash and cash equivalents in the balance
sheet?
$37,500 = $30,000 + $500 + $7,000
Accounting Rule: Cash is coin, currency, bank deposits including checking and savings
accounts, and negotiable instruments such as money orders, cashiers’ checks, personal
checks, and bank drafts. Petty cash funds and change funds are also cash.
Cash equivalents is treasury bills, commercial paper, money market funds, money
market savings certificates, certificates of deposit, and similar types of deposits with
liquidity of less than 3 months. (Note: 3 months is interpreted to mean 90 days or less.)
Postdated checks are reported as receivables.
,A company has the following items at year-end:
cash in bank - checking account of $18,500
cash on hand of $500
post-dated checks received totaling $3,500
certificates of deposit totaling $124,000
How much should be reported as cash in the balance sheet?
$19,000 = $18,500 + $500
Accounting Rule: Cash is coin, currency, bank deposits including checking and savings
accounts, and negotiable instruments such as money orders, cashiers’ checks, personal
checks, and bank drafts. Petty cash funds and change funds are also cash.
Cash equivalents is treasury bills, commercial paper, money market funds, money
market savings certificates, certificates of deposit, and similar types of deposits with
liquidity of less than 3 months (90 days).
Postdated checks are reported as receivables.
A company has the following items at year-end:
cash in bank: $35,000
petty cash: $300
short-term paper with maturity of 120 days: $5,500
postdated checks: $1,400
How much should be reported as cash in the balance sheet?
$35,300 = $35,000 + $300
Accounting Rule: Cash is coin, currency, bank deposits including checking and savings
accounts, and negotiable instruments such as money orders, cashiers’ checks, personal
checks, and bank drafts. Petty cash funds and change funds are also cash.
Cash equivalents is treasury bills, commercial paper, money market funds, money
market savings certificates, certificates of deposit, and similar types of deposits with
liquidity of less than 3 months (90 days).
Postdated checks are reported as receivables.
,A company has cash in the bank of $20,000, restricted cash in a separate account
of $3,000, and a bank overdraft in an account at another bank of $1,000.
How much should the company report in cash?
$20,000
Accounting Rule: Cash is coin, currency, bank deposits including checking and savings
accounts, and negotiable instruments such as money orders, cashiers’ checks, personal
checks, and bank drafts.
The bank overdraft is reported as a current liability. It cannot be offset against the other
bank’s cash account. However, the overdraft could be offset if the company had it in the
same bank where it has the $20,000.
Restricted cash refers to cash that is held by a company for specific reasons and is,
therefore, not available for immediate ordinary business use. It appears as a separate
item from cash and cash equivalents on the balance sheet. Restricted cash can be
classified as a current (short-term) or non-current (long-term) asset depending on when
the cash is expected to be used.
A company has cash in the bank of $10,000, restricted cash in a separate account
of $1,000 deemed immaterial, and a bank overdraft of $3,000 in the same bank
that houses the $10,000 in cash.
What amount should this company report as cash in the balance sheet?
$8,000 = $10,000 + $1,000 - $3,000
Accounting Rule: Cash is coin, currency, bank deposits including checking and savings
accounts, and negotiable instruments such as money orders, cashiers’ checks, personal
checks, and bank drafts.
The bank overdraft can be offset against the $10,000 since that cash account is in the
same bank as the overdraft.
Since the restricted cash is immaterial in amount, it doesn’t need to be segregated from
cash.
A company has the following items:
Cash: $ 10,000
Petty cash: $ 100
Short term paper: $ 1,500
,What is the cost of goods sold (COGS) and the value of ending inventory for
October?
$4,975 = COGS: (350 x $8.50) + (250 x $8.00). Ending Inventory: $8,225 = (200 x $7) +
((500 -250) x 8) + ((600 - 350) x $8.5) + (300 x $9)
Accounting Rule: The specific identification inventory valuation method tracks every
single item in an inventory individually from the time it enters the inventory until the time
it leaves it. This inventory method is suitable for companies with expensive, easily
distinguishable low-volume merchandise such as jewelry, fur coats, automobiles, unique
furniture, special manufactured made products.
A company that used the periodic inventory system overstated its beginning
inventory but correctly stated its ending inventory.
What will be the effect of this error on the financial statements at the end of the
period?
The cost of goods sold will be overstated and gross profit/net income will be
understated. The ending inventory on the balance sheet is correct according to the
facts.
Accounting Rule: Inventory errors come in two forms: understatements or
overstatements.
Beginning inventory errors affect only the income statement because cost of goods sold
is calculated using beginning inventory + purchases – ending inventory.
Ending inventory errors affect both the income statement and the balance sheet and will
affect two periods because 1) the ending inventory of one period will become the
beginning inventory for the following period, and 2) the calculation of the cost of goods
sold is beginning inventory + purchases – ending inventory.
As shown in the table below, errors in calculating beginning inventory have
a direct effect on cost of goods sold and inverse effect on gross profit and net income.
On the other hand, errors in calculating ending inventory have an inverse effect on
cost of goods sold and a direct effect on gross profit and net income. Errors in
purchases have the same effect as errors in beginning inventory, that is a direct effect
on cost of goods sold and inverse effect on gross profit and net income
company did not record the credit purchases of inventory and did not include this
item in the ending inventory balance.
, What is the effect of this on the financial statements?
Inventory is understated; net income is unaffected. Since both the purchases and
ending inventory are understated, the two errors cancel each other out, and there is no
effect on cost of goods sold and net income.
Beginning Inventory not affected
(+) Purchases understated
(-) Ending Inventory understated
Cost of Goods Sold not affected
A company uses the periodic inventory costing system. The company includes
goods shipped to them f.o.b. shipping point in purchases, but not ending
inventory.
What is the effect on the current ratio?
a. no effect.
b. understated.
c. overstated.
d. there is not enough information to determine the effect.
b. understated.
Ending inventory is understated because the purchase items were not included in the
ending inventory count. Accounts payable is not affected since the items were recorded
in the Purchases account and Accounts Payable account.
The current ratio is understated. The current ratio formula is current assets/current
liabilities. Ending inventory is a current asset and accounts payable is a current liability.
Since the numerator is understated and the denominator is correct, the current ratio is
understated. For example, assume a correct current ratio of = 2.5. Now, assume
current assets is understated by 10. The current ratio now is =2. Decreasing the
numerator lowers the current ratio.
A company overestimates its ending inventory for a year.
What effect will this have on the company's working capital and current ratio?
a. understatement of working capital and overstatement of current ratio.
b. overstatement of working capital and understatement of current ratio.
