The change in inventory value was created purely by accounting and exchange rate factors, because the subsidiary still has the same inventory and assets in place. However, this change would affect Streep’s consolidated financial statements and ratios. Assuming no other changes occurred, what effect would this have on Streep’s current ratio?

It would decrease by $7,504.

Explanation:

The current ratio determines liquidity of a company. The current ratio is calculated by dividing total current assets from total current liabilities. The change in inventory will affect the current ratio of the company. In the consolidated financial statements the value of inventory is decreased due to exchange rate fluctuations. The change in value of inventory will affect the amount reported in the balance sheet of the parent and will ultimately result in reduction of current ratio.

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