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Chavez Chocolates had a quick ratio of 1.74 at year-end 2009. Which of the following would...

Chavez Chocolates had a quick ratio of 1.74 at year-end 2009. Which of the following would cause the ratio to decrease during 2010? A. A decrease in both cash and marketable securities. B. An increase in both cash and marketable securities. C. An increase in current assets that exceeded the increase in current liabilities. D. Current assets as a percentage of total assets increased while current liabilities as a percentage of total liabilities and stockholders‘ equity decreased
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Answer #1

Quick ratio = (Cash + marketable securities + accounts receivable)/ current liability

The quick ratio will decrease if any of the cash or marketable securities or accounts receivable decreases.Also it will decrease when current liabilities will increase.

Quick ratio do not consider total current asset as it do no include inventories.

Therefore option C and D are incorrect. Also increase in cash and marketable securities will Increase the ratio and hence option B is also incorrect

So the correct option is A i.e. decrease in both cash and marketable securities.

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