Practice prompt · Q:transactions-to-statements/liquidity-evidence-001

Write a bounded conclusion from an improved ratio

Formative check on separating a correctly computed liquidity screen from a supported payment capacity conclusion.

Updated Sep 10, 2026 Review due Nov 6, 2026

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Northstar uses $20,000 of Cash to settle Accounts Payable. Its current ratio rises from 1.50 to approximately 1.67, while working capital stays at $40,000. Cash falls from $30,000 to $10,000, and Accounts Payable falls from $50,000 to $30,000. No remaining maturity, cash-flow forecast, restriction, or credit facility detail is supplied. Which conclusion is best supported?

Choose the best answer. A Liquidity definitely improved because the current ratio rose, so no cash-flow or maturity analysis is necessary. B The transaction reduced both Cash and a supplier claim; the ratio rose and working capital was unchanged, but a liquidity conclusion requires remaining maturities, expected operating cash flows, restrictions, and committed funding evidence. C Liquidity definitely worsened because Cash fell, even though an equal current obligation was extinguished. D Northstar still has $40,000 available Cash because working capital did not change.

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Answer: B

The payment lowered Cash and Accounts Payable by $20,000, left $40,000 working capital, and raised the current ratio from 1.50 to about 1.67. Those facts do not establish how remaining resources align with remaining due dates. Choice B gives a bounded conclusion and names the additional evidence needed.