As of December 31, 2012, Grove Corporation had a current ratio of 1.29, quick ratio of 1.05, and working capital of $18,000. The company uses a perpetual inventory system and sells merchandise for more than it cost. On January 1, 2012 Grove sold inventory on account for $6,000 and recorded cost of goods sold of $4,100. Which of the following statement is incorrect?
A)Grove's current ratio will decrease.
B)Grove's quick ratio will increase.
C)Grove's working capital will decrease.
D)A and C are both incorrect statements

Question

Quizplus · Accepted Answer

The transaction will have a net increase in current assets of $1,900 (cash goes up by $6000- inventory goes down by $4,100) and corresponding increase in gross profit, net income and stockholders' equity (revenue $6,000 - expenses $4,100). The transaction will increase current assets and therefore, the current ratio will increase. The quick ratio and working capital would also increase.

As of December 31, 2012, Grove Corporation Had a Current