Question

The following balance sheet information is provided for Greene Company for Year 2:Assets:-Cash $5,400-Accounts Receivable $15,500-Inventory $18,000-Prepaid Expenses $1,600-Plant and equipment, net of depreciation $20,200-Land $19,950Total Assets $80,650Liabilities and Stockholders' Equity-Accounts Payable $4,500-Salaries Payable $11,500-Bonds Payable (due in ten years) $19,000-Common stock, no par $30,000-Retained Earnings $15,650Total liabilities and stockholders' equity $80,650What is the company's quick (acid-test) ratio?

Answer 1

Answer:

The company's quick (acid-test) ratio is 1.30 times

Explanation:

The formula to compute quick ratio is shown below

= Quick assets ÷ Current liabilities

where,

quick assets = Cash + accounts receivable

= $5,400 + $15,500

= $20,900

It excludes inventory and prepaid expenses. So, we do not consider the computation part.

and, the current liabilities are accounts payable and the salaries payable.

So, the current liabilities would equal to

= $4500 + $11,500

= $16,000

Now put these values to the above formula

So, the quick ratio would equal to

= $20,900 ÷ $16,000

= 1.30 times

Hence, the company's quick (acid-test) ratio is 1.30 times