Selected Data from the Financial Statements Are Provided in the Following

question 101

Multiple Choice

Selected data from the financial statements are provided in the following table:
$\begin{array}{lrrr}&\text { Year } 3&\text { Year } 2&\text { Year } 1\\\text { Cash } & \$ 44,000 & \$ 28,000 & \$ 14,000 \\\text { Accounts receivable } & 84,000 & 32,000 & 114,400 \\\text { Inventory } & 44,000 & 166,000 & 100,000 \\\text { Prepaid expenses } & 46,000 & 36,000 & 41,600\\\text { Total current assets }&\$218,000&\$262,000&\$270,000\\\\\text { Total current liabilities } & \$ 130,000 & \$ 144,000 \\\text { Net credit sales } & 442,000 & 652,000 \\\text { Cost of goods sold } & 336,000 & 598,000 \\\text { Net cash flows from operating activities } & 32,000 & 58,000\end{array}$
-Refer to the figure Rainsoft Company.Which of the following characterizes the company's liquidity?

• A) Based on the current ratio and operating cash flow ratio, the company appears to be in a worse position to pay its current obligations at the end of Year 3 compared to Year 2.
• B) The quick ratio decreased from Year 2 to Year 3.
• C) The operating cash flow ratio increased from Year 2 to Year 3.
• D) Based on the quick ratio and cash ratio, the company appears to be in a better position to pay its current obligations at the end of Year 3 compared to Year 2.