On June 30, 2017, BobCat Inc. total current assets were $510,000 and its total current liabilities were $250,000. On July 1, 2017, BobCat Inc. paid a short-term note to a bank with $60,000 cash. As a result of this transaction, the current ratio will:

Increase.

Explanation:

Given that,

Total current assets = $510,000

Total current liabilities = $250,000

Current ratio before paying short term note:

= Total current assets ÷ Total current liabilities

= $510,000 ÷ $250,000

= 2.04

On July 1, 2017: Payment of short term note with cash = $60,000

This payment of short term note reduces the total current assets in terms of cash reduction and also reduces the total current liabilities in terms of short term liability.

New total current assets:

= $510,000 - $60,000

= $450,000

New current liability:

= $250,000 - $60,000

= $190,000

Current ratio:

= New Total current assets ÷ New Total current liabilities

= $450,000 ÷ $190,000

= 2.37

Therefore, the current ratio of this firm increases from 2.04 to 2.37.

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