VIM Company purchased $100,000 in inventory from its suppliers on credit terms. The company's acid-test ratio would most likely:
A) increase.
B) decrease.
C) be unchanged.
D) impossible to determine without more information.

Question

Quizplus · Accepted Answer

Purchasing inventory on credit terms increases the company's current liabilities, thus decreasing the acid-test ratio. The acid-test ratio only considers the company's most liquid assets (cash, marketable securities, and accounts receivable) in relation to current liabilities, and adding inventory to current assets will have a negative impact on the ratio.

VIM Company Purchased $100,000 in Inventory from Its Suppliers on Credit