Which of the following actions will cause an increase in the quick ratio in the short run?
A) $1,000 worth of inventory is sold, and an account receivable is created. The receivable exceeds the inventory by the amount of profit on the sale, which is added to retained earnings.
B) A small subsidiary which was acquired for $100,000 two years ago and which was generating profits at the rate of 10 percent is sold for $100,000 cash. (Average company profits are 15 percent of assets.)
C) Marketable securities are sold at cost.
D) All of the answers above.
E) Answers a and b above.

Question

Quizplus · Accepted Answer

A) Selling inventory and creating an account receivable will not increase the quick ratio as both current assets are affected equally, leaving the ratio unchanged.

B) Selling the subsidiary for cash will increase cash without affecting current liabilities, which will increase the quick ratio.

C) Selling marketable securities at cost will decrease the quick ratio, as the current assets will decrease while current liabilities stay the same.

Therefore, the correct answer is E, as only selling the subsidiary for cash (B) will increase the quick ratio in the short run.

Which of the Following Actions Will Cause an Increase in the Quick