When a company sells land for cash and makes a $25,000 gain:
A)Its acid-test ratio decreases.
B)Its current ratio decreases.
C)Its debt to equity ratio decreases.

Question

Quizplus · Accepted Answer

Selling land for cash results in an increase in cash and a decrease in land (an asset). As a result, total assets decrease and equity increases. This change in the balance sheet causes the debt to equity ratio to decrease. The acid-test ratio and current ratio are not affected by this transaction as they do not include land in their calculations.

When a Company Sells Land for Cash and Makes a $25,000