Current ratio : A part of liquidity ratios , current ratio reflects the ability to oblige the short term debts of a company. It is calculated based on the current assets and current liabilities; a company has in an accounting period. Long-term investment: Company’s investment in the stock of other companies is classified as investment in the balance sheet’s assets side. When these investments are for longer period of more than one year or current accounting cycle, these are classified as long-term investments. Short-term investment: Company’s investment in the stock of other companies is classified as investment in the balance sheet’s assets side. When these investments are for shorter period of less than one year or current accounting cycle, these are classified as short-term investments under current assets. 1. To identify: The effect on current ratio and true financial position of Company R after a long-term investment reclassified as short-term investment.

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Chapter 17, Problem 17.1EI

To determine

Current ratio: A part of liquidity ratios, current ratio reflects the ability to oblige the short term debts of a company. It is calculated based on the current assets and current liabilities; a company has in an accounting period.

Long-term investment: Company’s investment in the stock of other companies is classified as investment in the balance sheet’s assets side. When these investments are for longer period of more than one year or current accounting cycle, these are classified as long-term investments.

Short-term investment: Company’s investment in the stock of other companies is classified as investment in the balance sheet’s assets side. When these investments are for shorter period of less than one year or current accounting cycle, these are classified as short-term investments under current assets.

1.

To identify: The effect on current ratio and true financial position of Company R after a long-term investment reclassified as short-term investment.

To determine

2.

To identify: The action of management as ethical or unethical.

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