7. If a customer pays its overdue bill on inventory purchased six months ago, th

Question

7. If a customer pays its overdue bill on inventory purchased six months ago, the current ratio will a. Increase b. decrease c. stay the same d. cannot be determined 8. If a customer pays its overdue bill on inventory purchased six months ago, the quick ratio will a. Increase b. decrease c. stay the same d. cannot be determined 9. If the firm uses cash to purchase additional inventories, the current ratio will a. Increase b. decrease c. stay the same d. cannot be determined 10. If the firm uses cash to purchase additional inventories, the quick ratio will a. Increase b. decrease c. stay the same d. cannot be determined

Explanation / Answer

Answer for question 7

If a company pays on overdue on inventory after 6 month it mean on assets side inventory increase and value of cash is not decrease because account payable increase.

So current asset in this will increase.

Hence, Option (A) is correct answer.

Answer for Question 8

Inventory is not included in Quick assets, So If a company pays on overdue on inventory after 6 month, and it will not affect current assets of company.

Hence, Option (C) is correct answer.

Answer for question 9

If company use cash to purchase inventory it mean that cash is decrease from current assets and inventory is increase by same amount. So the transaction will not affect the current assets.

Hence, Option (C) is correct answer.

Answer fro question 10

Inventory is not included in Quick assets so cash is decrease from quick assets. So quick assets ids decrease.

Hence, option (B) is correct answer.

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