A company's current ratio and acid-test ratios are both greater than 1.0 to 1.If obsolete inventory is written off,what would be the effect?
A) A decrease in the acid-test ratio.
B) An increase in the acid-test ratio.
C) An increase in net working capital.
D) A decrease in the current ratio.

Question

Quizplus · Accepted Answer

Writing off obsolete inventory decreases current assets, which reduces the current ratio. The acid-test ratio, which excludes inventory, remains unaffected.

A Company's Current Ratio and Acid-Test Ratios Are Both Greater