Which of the following actions will cause an increase in the quick ratio in the short run?
A)$1,000 worth of inventory is sold, and an account receivable is created.The receivable exceeds the inventory by the amount of profit of the sale, which is added to retained earnings.
B)A small subsidiary which was acquired for $100,000 two years ago and which was generating profits at the rate of 10 percent is sold for $100,000 cash.(Average company profits are 15 percent of assets.)
C)Marketable securities are sold at cost.
D)All of the above.
E)Answers a and b above.

Question

Quizplus · Accepted Answer

Option A: Selling inventory and creating an account receivable will increase the quick ratio, as the sale generates cash that can be used to pay off current liabilities, while the account receivable can also be used to settle debts quickly.

Option B: Selling a subsidiary for cash will also increase the quick ratio, as the cash generated can be used to pay off current liabilities.

Option C: Selling marketable securities at cost will not affect the quick ratio, as the ratio only takes into account cash and assets that can be quickly converted into cash.

Therefore, options A and B are the best choices and they are combined in option E.

Which of the Following Actions Will Cause an Increase in the Quick