AICPA Exam CPA-Business Topic 2 Question 48 Discussion

Choice 'b' is correct. As a company becomes more conservative in its working capital policy, it would tend to have an increase in the ratio of current assets to units of output.

Choice 'a' is incorrect. Acid-test ratio would tend to increase with conservatism.

Choice 'c' is incorrect. Marketable securities investments would tend to increase while common stock investments would tend to decrease.

Choice 'd' is incorrect. Permanent working capital would tend to increase.