1. Consider a company that starts with a current ratio of 1.5 and a quick ratio of 0.5. Which of the following statements is correct?
A) Borrowing cash from a bank by signing a 6 month note would lead to a decrease in the current ratio
B) Purchasing inventory on account would increase a company’s quick ratio.
C) Prepayment of rent would decrease a company’s current ratio.
D) Purchase of equipment using cash would increase the quick ratio.
E) None of the above are correct.
2. Identify which of the following will increase the operating cycle. Choose only one.
a. decrease in average collection period
b. decrease in days' sales in inventory
c. decrease in inventory turnover ratio
d. decrease in accounts payable period
e. decrease in accounts payable turnover ratio