Question

Smith Corporation has ratio of 2.6. What is Smith's acid test (quick) ratio ds current assets of $11,400, inventories of $4,000, and a current of

a. 1.69
b. .54
c. .74
d. 1.35
e. 1.44

Answer 1

Answer:

Current ratio = Current assets

                        Current liabilities

   2.6             = $11,400

                        Current liabilities

Current liabilities = $11,400

                                 2.6

Current liabilities = $4,385

Quick ratio = Current assets - Inventory

                      Current liabilities

Quick ratio = $11,400 - $4,000

                      $4,385

Quick ratio = 1.69

Explanation:

Current ratio is the ratio of current assets to current liabilities. The current ratio and current assets have been provided in the question with the exception of current liabilities. Thus, we will make current liabilities the subject of the formula.

Quick ratio is calculated as current assets minus inventory divided by current liabilities. Since the current liabilities have been calculated. Then, we will divide the difference between current assets and inventory by current liabilities  so as to determine the quick ratio.