All else the same, which of the following occurs when a firm buys inventory with cash?
A) The quick ratio goes up if it was greater than one before the change.
B) The current ratio goes down if it was greater than one before the change.
C) The current ratio goes down if it was lower than one before the change.
D) The quick ratio goes up if it was lower than one before the change.
E) The quick ratio declines but the current ratio remains unchanged.

Question

Quizplus · Accepted Answer

When a firm buys inventory with cash, its quick assets (cash) decrease while its inventory increases, leading to a decline in the quick ratio. However, since both cash and inventory are part of current assets, the total current assets remain unchanged, thus the current ratio remains unchanged.

All Else the Same, Which of the Following Occurs When