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 paid $250 for transportation in cost on merchandise it had received.Which of the following statements is incorrect?
A) Gant's current ratio will remain the same
B) Gant's quick ratio will increase
C) Gant's working capital will remain the same
D) Gant's quick ratio will increase and its current ratio will remain the same

Question

Quizplus · Accepted Answer

If Gant paid $250 for transportation in cost on merchandise it had received, it would increase the inventory by $250. As a result, the quick ratio would increase because inventory is not included in the quick ratio calculation. However, neither the current ratio nor the working capital would be affected, as they are based on current assets and liabilities, which do not include inventory. Therefore, the incorrect statement is B, which implies that the quick ratio would not increase.

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