On January 1,2015 Gatewood issued common stock for $20,000 cash.Which of the following statement is true?
A)Gatewood's current ratio will increase.
B)Gatewood's current ratio will decrease and Gatewood's quick ratio will increase.
C)Gatewood's quick ratio will decrease.
D)Gatewood's working capital will decrease.

Question

Quizplus · Accepted Answer

The issuance of common stock for cash does not have any impact on the current ratio, which is calculated by dividing current assets by current liabilities. This transaction does not affect the current assets or current liabilities of Gatewood. Therefore, the current ratio will remain the same.

On January 1,2015 Gatewood Issued Common Stock for $20,000 Cash