Question

Airline Accessories has the following current assets: cash, $109 million; receivables, $101 million; inventory, $189 million; and other current assets, $25 million. Airline Accessories has the following liabilities: accounts payable, $112 million; current portion of long-term debt, $42 million; and long-term debt, $30 million. Based on these amounts, calculate the current ratio and the acid-test ratio for Airline Accessories.

Answer 1

Answer:

The current ratio is 2.75

The acid-test ratio is 1.36

Explanation:

In order to calculate the current ratio we would have to make the following calculatio:

Current Ratio =Current Assets/Current Liabilities

Current Assets = Cash + Receivables + Inventory + Other current assets

= 109 + 101 + 189 + 25 = $424 million

Current Liabilities = Accounts Payable + Current portion of long term debt = 112 + 42 = $154 million

Therefore, current ratio=$424/$154

current ratio= 2.75

In order to calculate the acid-test ratio for Airline Accessories we would have to make the following calculation:

Acid - Test Ratio =Cash + Receivables/Current Liabilities

Acid - Test Ratio=$210/$154

Acid - Test Ratio=1.36