Which of the following actions would NOT affect the quick / liquid ratio of a firm?

Question

BlackTom AI · Accepted Answer

To assess which action would NOT affect the quick/liquid ratio, we first recall that the quick ratio = (quick assets) / (current liabilities), where quick assets are cash, marketable securities, and accounts receivable (inventory is excluded).

Option a: Purchase inventory on credit. This increases current liabilities (payables) and increases inventory (a non-quick asset). Since quick assets do not rise with this transaction and current liabilities do, the quick ratio would decline. Therefore, this action does affect the quick ratio in a negative way.

Option b: Sell fixed assets for cash. Cash is a quick asset, while fixed assets are not part of quick assets. This transaction increases quick assets (cash) while current liabilities stay the same, so the quick ratio would rise. Thus, this action does affect the quick ratio positively.

Option c: Sell inventory on credit. Inventory is not a quick asset, but selling it on credit converts inventory into accounts receivable, a quick asset. Current liabilities remain unchanged. Net effect is an increase in quick assets (via AR) with no change in liabilities, so the quick ratio would improve. This action does affect the quick ratio.

Option d: Collect outstanding accounts receivable. This simply converts AR into cash, both of which are quick assets, leaving the total of quick assets unchanged and current liabilities unchanged. Consequently, the quick ratio remains the same, meaning this action would NOT affect the quick ratio.

In summary, among the options, the action that would not affect the quick ratio is the collection of outstanding accounts receivable, since it merely reclassifies one form of quick asset into another without changing the total quick assets or current liabilities.

Which of the following actions would NOT affect the quick / liquid ratio of a firm?

View Explanation

Log in for full answers

Similar Questions

CANADIAN TIRE- Part 1 of 11 Use two decimal points. Do not add percentage (%), or times (X) with the number. Calculate Quick Ratio for 2020.

A company’s quick ratio is 0.8. What does this indicate about its liquidity? 一家公司的速动比率是 0.8。这对其流动性有何指示？

4.4: A company’s quick ratio is 1.2. What does this indicate about its liquidity?

A firm has a higher quick (or acid test) ratio than the industry average, which implies:

Question textYour firm has cash of $900, AP of $290, AR of 100 and inventory of 400. What is the value of quick ratio? Round your answer to the nearest number Answer 1 Question 13[input]

Question textYour firm has cash of $900, AP of $290, AR of 100 and inventory of 400. What is the value of quick ratio? Round your answer to the nearest number Answer 1 Question 13[input]

In a consumer society, many adults channel creativity into buying things

More Practical Tools for Students Powered by AI Study Helper

Homework AI Solver

Stylized AI Paper Writer

Plagiarism Checker Assistant

Citation AI Academic Writing Tool

In-Class Translation Assistant

AI Note Generator

AI Quiz Answers

Past Exam Questions from University Test Bank

Smart Practice Assistant

Adaptive Practice

Making Your Study Simpler