Question

The following items are reported on a company's balance sheet: Cash $225,000 Marketable securities 115,000 Accounts receivable (net) 112,000 Inventory 158,000 Accounts payable 244,000 Determine (a) the current ratio and (b) the quick ratio. Round your answers to one decimal place. a. Current ratio b. Quick ratio

Answer 1

Answer:

Current ratio is 2.50:1.

Quick ratio is 1.85:1

Explanation:

From the question, the following can first be calculated:

Current asset = Cash + Marketable securities + Account receivable + Inventory  

                      = $225,000 + $115,000 + $112,000 + $158,000

Current asset = $610,000

Quick asset = Current asset – Inventory

                    = $610,000 - $158,000

Quick asset = $452,000

Current liability = Account payable = $244,000

(a) the current ratio

Current ratio = Current assets/current liability = $610,000/$244,000 = 2.50

Therefore, the current ratio is 2.50:1., and the company has more than enough current asset to meet its short term debt obligation.

(b) the quick ratio

Quick ratio = Quick assets/current liability = $452,000/$244,000 = 1.85

Therefore, the quick ratio is 1.85:1, and the company can quickly convert more than enough asset to cash to meet short and immediate debt obligations.

Answer 2

Answer:

Current ratio is 2.5:1

Quick ratio 1.9:1

Explanation:

Current ratio =current assets/current laibilities:1

current assets =cash+marketable securities+accounts receivables+inventory

current assets=$225000+$115,000+$112000+$158,000

current assets =$610,000

current liabilities=accounts payable=$244,000

Current ratio=610000/244000

current ratio=2.5 :1

quick ratio =(current assets-inventory)/current liabilities:1

quick ratio=(610000-158000)/244000

                =1.9:1

The current ratio suggests the company has liquid resources that is more than double of current liabilities which can used in discharging debt obligations in the normal course of business

Quick ratio excludes inventory from the ratio since inventory is most difficult item to convert to cash