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 above.
E) Answers a and b above.

Question

Quizplus · Accepted Answer

Choice A will decrease the quick ratio as it reduces the amount of cash and increases the current assets (accounts receivable) which may not be readily convertible to cash. Choice B will increase the quick ratio as it involves a cash inflow which directly affects the numerator of the quick ratio. Choice C will have no effect on the quick ratio as marketable securities are already included in the calculation of quick ratio. Therefore, choices A and C can be eliminated. Hence, the correct answer is E.

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