Answer:
a. Current ratio=2.105
b. Quick ratio=1.053
c. Cash ratio=0.211
Explanation:
a.
Step 1: Determine total current assets
The total current assets can be expressed as;
T=C+R+I
where;
T=total current assets
C=cash and marketable securities
R=accounts receivable
I=inventory
In our case;
T=unknown, to be determined
C=$200,000
R=$800,000
I=$1,000,000
replacing;
T=(200,000+800,000+1,000,000)=$2,000,000
Total current assets=$2,000,000
Step 2: Determine total current liabilities
The total current liabilities can be expressed as;
T=W+A+N
where;
T=total current liabilities
W=accrued wages and taxes
A=accounts payable
N=notes payable
In our case;
T=unknown, to be determined
W=$250,000
A=$400,000
N=$300,000
replacing;
T=(250,000+400,000+300,000)=$950,000
Total current liabilities=$950,000
Step 3: Determine current ratio
The current ratio can be expressed as follows;
Current ratio=total current assets/total current liabilities
where;
Current ratio=unknown, to be determined
total current assets=$2,000,000
total current liabilities=$950,000
replacing;
Current ratio=(2,000,000/950,000)=2.105
b.
Step 4: Determine quick ratio
The quick ratio can be expressed as follows;
Quick ratio=(current assets-inventory)/current liabilities
where;
Quick ratio=unknown, to be determined
current assets=$2,000,000
inventory=$1,000,000
current liabilities=$950,000
replacing;
Quick ratio=(2,000,000-1,000,000)/950,000
Quick ratio=1,000,000/950,000=1.053
Quick ratio=1.053
c.
Step 4: Determine cash ratio
The cash ratio can be expressed as follows;
Cash ratio=(cash+marketable securities)/current liabilities
where;
Cash ratio=unknown, to be determined
Cash and marketable securities=$200,000
current liabilities=$950,000
replacing;
Cash ratio=(200,000/950,000)=0.211
Cash ratio=0.211
