Bolton Company substantially increased its allowance for bad debt. Which of the following effects will occur? Question options: It will reduce the current ratio. It will increase the acid test ratio. It will increase working capital. It will reduce its dividend payout ratio.

Answered: Bolton Company substantially increased…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Bolton Company substantially increased its allowance for bad debt. Which of the following effects will occur?

Question options:

	It will reduce the current ratio.
	It will increase the acid test ratio.
	It will increase working capital.
	It will reduce its dividend payout ratio.

Expert Solution

Step 1

The current ratio measures capabilities of the company to meet-out short-term obligations or not. it can be calculated by using the following formula.

Current ratio = Current assets / Current liabilities

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