Zack Company has a current ratio of 2.5. What will be the effect of a purchase of inventory with cash on the acid-test ratio and on working capital? $\begin{array} { l c c }
& \text { Acid-Test Ratio } & \text { Working Capital } \
\text { A) } & \text { decrease } & \text { decrease } \
\text { B) } & \text { decrease } & \text { no effect } \
\text { C) } & \text { no effect } & \text { decrease } \
\text { D) } & \text { no effect } & \text { no effect }
\end{array}$
A)Option A
B)Option B
C)Option C
D)Option D

Question

Zack Company has a current ratio of 2.5. What will be the effect of a purchase of inventory with cash on the acid-test ratio and on working capital? $\begin{array} { l c c } 
& \text { Acid-Test Ratio } & \text { Working Capital } \
\text { A) } & \text { decrease } & \text { decrease } \
\text { B) } & \text { decrease } & \text { no effect } \
\text { C) } & \text { no effect } & \text { decrease } \
\text { D) } & \text { no effect } & \text { no effect }
\end{array}$
A)Option A
B)Option B
C)Option C
D)Option D

Quizplus · Accepted Answer

The acid-test ratio decreases because cash (a quick asset) is reduced, while inventory (not a quick asset) increases. Working capital remains unchanged as both current assets and current liabilities are unaffected in total.

Zack Company Has a Current Ratio of 2 A)Option a B)Option B C)Option C D)Option D

Zack Company Has a Current Ratio of 2 A)Option a
B)Option B
C)Option C
D)Option D