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 collected $5,200 of accounts receivable.As a result of this transaction,Gant's working capital will:
A)Increase.
B)Decrease.
C)Remain the same.
D)Cannot be determined.

Question

Quizplus · Accepted Answer

The collection from a customer on account is an asset exchange transaction;the current asset account Cash increases and the current asset account Accounts Receivable decreases.Working capital is calculated by subtracting current liabilities from current assets.Since this transaction does not affect total current assets or total current liabilities,the amount of working capital does not change.

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