The following information concerning the current assets and current liabilities of
Mason Company at December 31, 2017, is presented below.
$\begin{array}{lrr}
\text { Current Assets }\
\text { Cash } & & \$ 6,700 \
\text { Accounts Receivable } & \$ 7,900 & \
\text { Less Allowance } & \underline{ (70) }& 7,830 \
\text { Inventory } & & 2,270 \
\text { Prepaid expenses } & & \underline{500} \
\text { Total }& & \underline{\$17,300}\
\
\text { Current Liabilities }\
\text { Accounts payable } && \$ 9,000 \
\text { Wages payable } && 500 \
\text { Taxes payable } & &200 \
\text { Rent payable } & &1,600 \
\text { Notes payable } &&\underline{ 2,000} \
\text { Total } &&\underline{ \$ 13,300}
\end{array}$
Based on this information, what would the quick ratio be if Mason sold all of its inventory for $6,000 cash?
A)The quick ratio would decrease from 1.09 to 0.19.
B)The quick ratio would decrease from 1.30 to 0.85.
C)The quick ratio would increase from 1.30 to 1.54.
D)The quick ratio would increase from 1.09 to 1.54.

Question

Quizplus · Accepted Answer

The quick ratio is calculated as (Cash + Accounts Receivable + Marketable Securities) / Current Liabilities. Initially, the quick assets are Cash ($6,700) + Accounts Receivable ($7,830) = $14,530. After selling inventory for $6,000, cash increases to $12,700, making quick assets $12,700 + $7,830 = $20,530. Current liabilities remain at $13,300. Initially, the quick ratio is $14,530 / $13,300 = 1.09. After selling inventory, it becomes $20,530 / $13,300 = 1.54.

The Following Information Concerning the Current Assets and Current Liabilities