As of December 31, 2012, Grove 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, 2012 Grove issued common stock for $10,000 cash. Which of the following statement is true?
A)Grove's current ratio will increase.
B)Grove's current ratio will decrease.
C)Grove's quick ratio will decrease.
D)Grove's working capital will decrease.

Question

Quizplus · Accepted Answer

The transaction will have a net increase in current assets and corresponding increase in gross profit, net income and stockholders' equity. The stock issue will increase current assets and stockholders' equity. Both transactions will increase current assets and therefore, the current ratio will increase. The quick ratio and working capital would also increase.

As of December 31, 2012, Grove Corporation Had a Current