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'A corporation's early liquidation of a long-term note with cash affects the ?

A. Current ratio to a greater degree than the quick ratio.

B. Quick ratio to a greater degree than the current ratio. .

C. Current and quick ratio to the same degree.

D. Current ratio but not the quick ratio.

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Question added by Deleted user
Date Posted: 2015/03/27
Shahbaz Hayder
by Shahbaz Hayder , Group Head of Finance , Sharif Group of Companies

B. Quick ratio to a greater degree than the current ratio. 

 

As Current Assets used in the calculation of Current and Quick ratio are different.

So, effect will also be different.

Youssef Talaat CMA
by Youssef Talaat CMA , accountant , Galaxy industrial equipment trading L.L.C

thats a tricky one as most of us will calculate the difference on both ratio on a numerical basis and this will leads to answer C: Current and quick ratio to the same degree which is a huge mistake the key here is to calculate the degree( the percentage)

 

hence  B. Quick ratio to a greater degree than the current ratio. AND ALWAYS WILL BE  .although there is some assumption to be considered like whether the current and quick ratio were both greater than the current liabilities after and before the transaction but it does not matter in both cases the quick ratio will respond to the change grater than the current ratio 

Rashid Mahmood
by Rashid Mahmood , Manager , Mudassar Cotton industry

Current Ratio is Greater the  Quick  ratio

Deleted user
by Deleted user

A corporation's early liquidation of a long-term note with cash affects the  B. Quick ratio to a greater degree than the current ratio. .

Ahmed kandil
by Ahmed kandil , Cost Controller , Battour Holding Cpompany

Answer C is the correct answer

samin sunny
by samin sunny , Senior Finance & Accounts Officer , Fish Farm LLC

answer is C , current and quick ratio to the same degree

Sobhy Zahran
by Sobhy Zahran , senior Accountant , lifts Technology Company

B. Quick ratio to a greater degree than the current ratio

as The numerators of the quick and current ratios are decreased when cash is expended. Early payment of a long-term liability has no effect on the denominator (current liabilities). Since the numerator of the quick ratio, which includes cash, net receivables, and marketable securities, is less than the numerator of the current ratio, which includes all current assets, the quick ratio is affected to a greater degree.

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