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 purchased merchandise on account for $4,000. Which of the following statements is true?
A)Grove's current ratio will increase.
B)Grove's quick ratio will increase.
C)Grove's current ratio will decrease.
D)Grove's quick ratio will increase and its current ratio will decrease.

Question

Quizplus · Accepted Answer

The transaction will increase current assets (inventory) by $4,000 and current liabilities (accounts payable) by $4,000. This will cause the current ratio to decrease. The quick ratio will also decrease.

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