A company issues $200,000 in long-term bonds and pays off $200,000 in accounts payable. Which of the following statements is true?
A) Both the quick ratio and times interest earned ratio will rise.
B) The quick ratio will fall but the times interest earned ratio will rise.
C) The quick ratio will rise but the times interest earned ratio will fall.
D) Both the quick ratio and times interest earned ratio will fall.

Question

Quizplus · Accepted Answer

Issuing long-term bonds increases cash, improving the quick ratio, while paying off accounts payable does not affect earnings, but increases interest expenses, potentially reducing the times interest earned ratio.

A Company Issues $200,000 in Long-Term Bonds and Pays Off