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 not true?
A)Gant's current ratio will decrease.
B)Gant's quick ratio will increase.
C)Gant's working capital will increase.
D)None of these answers choices are correct.

Question

Quizplus · Accepted Answer

Selling inventory on account for $6,000 will increase Gant Corporation's accounts receivable, which will decrease the current ratio since current ratio is calculated as current assets divided by current liabilities. As a result, statement A is not true. However, the quick ratio will increase since accounts receivable are excluded from the quick ratio calculation, and the working capital will also increase since there is an increase in current assets. Therefore, the correct answer is A.

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