As of December 31, Year 1, Gant Corporation had a current ratio of 1.29, quick ratio of 1.05, and working capital of $29,000. The company uses a perpetual inventory system and sells merchandise for more than it cost. On January 1, Year 2, Gant paid $3,600 on accounts payable. Which of the following statements is incorrect?

Question

Quizplus · Accepted Answer

When Gant pays off its accounts payable, its quick ratio will increase due to a decrease in current liabilities (accounts payable), but its current ratio will decrease because both current assets and current liabilities will decrease. Therefore, statement A is incorrect. Gant's working capital will decrease by $3,600, but this is not one of the answer choices. Gant's current ratio will decrease because current assets and current liabilities will decrease by the same amount.

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