A. This answer is incorrect. See the correct answer for a complete explanation.

B. This answer is incorrect. See the correct answer for a complete explanation.

C. This answer is incorrect. See the correct answer for a complete explanation.

D. The current ratio is calculated as current assets divided by current liabilities. Current assets include accounts receivable ($200,000), cash ($100,000), inventory ($400,000) and prepaid expenses ($40,000). Current liabilities include accounts payable ($80,000), interest payable ($10,000) and notes payable ($50,000). Note that even though the notes payable are due after the operating cycle is over, the distinction for a current asset or liability is that it will be converted or settled within 12 months or the operating cycle, whichever is longer. The total current assets are $740,000 and current liabilities are $140,000. This gives us a current ratio of 5.29 before the payment is made. If the payment of the payables is made, the total current assets will become $700,000 and the current liabilities will become $100,000. This gives a new current ratio of 7, an increase in the current ratio. The quick ratio is calculated as quick assets (current assets excluding inventory and prepaid expenses) divided by current liabilities. Quick assets include accounts receivable ($200,000) and cash ($100,000). Current liabilities include accounts payable ($80,000), interest payable ($10,000) and notes payable ($50,000). Note that even though the notes payable are due after the operating cycle is over, the distinction for a current asset or liability is that it will be converted or settled within 12 months or the operating cycle, whichever is longer. The total quick assets are $300,000 and current liabilities are $140,000. This gives us a quick ratio of 2.14 before the payment of the payables. If the payment of the payables is made, the total quick assets will become $260,000 and the current liabilities will become $100,000. This gives a new current ratio of 2.6, an increase in the current ratio.