Answer:
Option (b) is correct.
Explanation:
Given that,
Current assets = $70,000
Current liabilities = $50,000
Pays a current liability = $1,000
Current ratio(Prior) :
= Current assets ÷ Current liabilities
= $70,000 ÷ $50,000
= 1.40
Current ratio(After paying liability) :
= (Current assets - $1,000) ÷ (Current liabilities - $1,000)
= ($70,000 - $1,000) ÷ ($50,000 - $1,000)
= $69,000 ÷ $49,000
= 1.41
Therefore, there is an increase in current ratio.
Working capital(Prior):
= Current assets - Current liabilities
= $70,000 - $50,000
= $20,000
Working capital(After paying liability):
= (Current assets - $1,000) - (Current liabilities - $1,000)
= ($70,000 - $1,000) - ($50,000 - $1,000)
= $69,000 - $49,000
= $20,000
Therefore, there is no change in working capital.
