Which of the following ratios increases when inventory is sold on account for a price equal to its original cost?
A)Current.
B)Quick.
C)Return on assets.
D)Return on equity.

Question

Quizplus · Accepted Answer

When inventory is sold on account for a price equal to its original cost, there is no effect on current ratio (current assets/current liabilities), return on assets (net income/total assets), or return on equity (net income/shareholders' equity). However, the quick ratio (quick assets/current liabilities) decreases since accounts receivable increase and there was no change in inventory value (which is not considered a quick asset). Therefore, the best choice is (B) Quick.

Which of the Following Ratios Increases When Inventory Is Sold