During the current year,a company issues $200,000 in long-term bonds and buys $200,000 in inventory for cash.Which of the following statements is true regarding the company's year-end ratios?
A)The quick ratio will stay the same and the times interest earned ratio will fall.
B)The quick ratio will rise and the times interest earned ratio will rise.
C)The quick ratio will rise but the times interest earned ratio will fall.
D)The quick ratio will rise and the times interest earned ratio will stay the same.

Question

Quizplus · Accepted Answer

Issuing bonds increases cash, but buying inventory decreases it, leaving the quick ratio unchanged. Interest expenses from bonds reduce earnings, lowering the times interest earned ratio.

During the Current Year,a Company Issues $200,000 in Long-Term Bonds