By increasing current liabilities, this transaction lowers the current ratio. Current liabilities divided by Current Assets is the current ratio. Current assets are unaffected.
Both options are suitable. Long-term refinancing of current debt raises the current ratio and decreases current liabilities while increasing noncurrent debt. Appropriating retained earnings often portends a temporary decline in dividend payments in the future. Total retained earnings are thus kept at a greater level.
This transaction boosts OE by the same amount that total liabilities are reduced. The ratio's denominator increases while the numerator decreases. The ratio falls below the maximum as a result of both circumstances.
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