Question

Refer to the following selected financial information from Dodge Company. Compute the company's acid-test ratio. Cash $ 42,250 Short-term investments 60,000 Accounts receivable, net 79,500 Merchandise inventory 115,000 Prepaid expenses 9,700 Accounts payable 111,400
a. 2.75.
b. 2.66.
c. 0.92.
d. 1.12.
e. 1.63.

Answer 1

Answer:

company's acid-test ratio is 1.63. Option e

Explanation:

Acid test ratio is similar to current ratio. However, current assets difficult to liquidate such as inventory are usually not included in the total current asset computation

Given,

Cash = $ 42,250

Short-term investments = 60,000

Accounts receivable, net = 79,500

Merchandise inventory = 115,000

Prepaid expenses = 9,700

Accounts payable = 111,400

Acid test = (42250 + 60000 + 79500 + 9700)/111400

               = 181750/111400

               = 1.63

Option e.