Question

Presented below is information available for marley company. current assets cash $ 4,000 short-term investments 65,000 accounts receivable 61,000 inventories 110,000 prepaid expenses 30,000 total current assets $ 270,000 total current liabilities are $100,000. the acid-test ratio for marley is:

Answer 1

Calculation of Acid Test Ratio:

Acid test ratio can be calculated with the help of following formula;

Acid test ratio = (Cash + Short-term investments+ Accounts receivable) / Total current liabilities

= (4000+65000+61000) / 100000

= 1.3

Hence, Acid test ratio is 1.3

(Note: We don’t consider inventories and prepaid expenses for the calculation of Acid test ratio because these assets are not quick assets.)