Summary Business Accounting

Question:

Zenk Co. wrote off obsolete inventory of $100,000 during 2013. What was the effect of this write-off on

Zenk’s ratio analysis?

a. Decrease in the current ratio but not the quick ratio.

b. Decrease in the quick ratio but not in the current ratio.

c. Increase in the current ratio but not in the quick ratio.

d. Increase in the quick ratio but not in the current ratio.

Beginning in 2011, International Financial Reporting Standards are tested on the CPA exam along with

U.S. GAAP. The following questions deal with the application of IFRS.



Answer:



a. Since inventory is not included in the quick ratio, the write-off of obsolete inventory would have no

effect on the quick ratio; however, it would decrease the current ratio as the write-off would reduce

current assets.