How would the quick ratio be affected by a prepayment of $30,000 for fire and liability insurance?
A) The quick ratio would increase.
B) The quick ratio would decrease.
C) The quick ratio would not change.
D) The effect cannot be determined from the information given.

Question

Quizplus · Accepted Answer

The quick ratio would decrease because prepaying for insurance reduces cash or cash equivalents, which are part of the quick assets, without affecting current liabilities.

How Would the Quick Ratio Be Affected by a Prepayment