As of December 31, Year 1, Gant Corporation had a current ratio of 1.29, quick ratio of 1.05, and working capital of $18,000. The company uses a perpetual inventory system and sells merchandise for more than it cost.
- On January 1, Year 2, Gant sold inventory on account for $6,000. Which of the following statements is incorrect?
A) Gant's current ratio will increase.
B) Gant's quick ratio will decrease.
C) Gant's working capital will increase.
D) None of these answers are correct.

Question

Quizplus · Accepted Answer

Selling inventory on account does not affect the current assets that make up the quick ratio (cash, marketable securities, and accounts receivable), so the quick ratio will not change. However, the increase in accounts receivable will cause the current ratio to increase (assuming no other changes) and the increase in working capital is also correct. Therefore, choice B is incorrect.

As of December 31, Year 1, Gant Corporation Had a Current