If management decided to create a hidden reserve to make the company look more profitable by increasing the allowance for uncollectibles, what would be the effect on the current ratio and quick ratio?
$\begin{array}{ll}
&\text { Current } & \text { Quick } \
&\text { Ratio } & \text { Ratio } \
A.&\text { Increase } & \text { Increase } \
B.&\text { Increase } & \text { Decrease } \
C.&\text { Decrease } & \text { Increase } \
D.&\text { Decrease } & \text { Decrease }
\end{array}$

Question

If management decided to create a hidden reserve to make the company look more profitable by increasing the allowance for uncollectibles, what would be the effect on the current ratio and quick ratio? 
$\begin{array}{ll}
&\text { Current } & \text { Quick } \
&\text { Ratio } & \text { Ratio } \
A.&\text { Increase } & \text { Increase } \
B.&\text { Increase } & \text { Decrease } \
C.&\text { Decrease } & \text { Increase } \
D.&\text { Decrease } & \text { Decrease }
\end{array}$

Quizplus · Accepted Answer

Increasing the allowance for uncollectibles reduces current assets (specifically accounts receivable), which decreases both the current ratio and the quick ratio, as both ratios are dependent on the value of current assets.

If Management Decided to Create a Hidden Reserve to Make