Question

Case X Case Y Case Z Cash $ 2,700 $ 290 $ 1,400 Short-term investments 0 0 500 Current receivables 320 570 800 Inventory 2,325 2,140 3,350 Prepaid expenses 400 700 900 Total current assets $ 5,745 $ 3,700 $ 6,950 Current liabilities $ 2,340 $ 1,380 $ 3,850 Compute the current ratio and acid-test ratio for each of the following separate cases.

Answer 1

Answer:

Explanation:

current Asset

X. Y. Z

$ $ $

Cash. 2,700. 290. 1,400

Account Receivable. 320. 570. 800

Inventory. 2,325 2,140 3,350

Prepaid expenses 400 700. 900

Short term investment 0 0 500

Total 5,745 3,700 6,900

Current Liability

X. Y Z

$ $ $

2,340 1,380 3,850

To calculate the current ratio

Current Asset/Current Liability

For X

5,745/2,340

=2.45

For Y

3,700/1,380

= 2.68

For Z

6,950/3,850

= 1.81

The current ratio for Y is higher than that of X & Z

Acid test ratio

Current Asset - inventory + prepayment /Current Liability

For X

5,745 - 2,325 + 400/2,340

= 3,820/2,340

= 1.6

For Y

3,700 - 2,140 + 700/1,380

= 2,260/1,380

= 1.6

For Z

6,950 -3,350 + 900/3,850

= 4,500/3,850

= 1.17

The level of solvency of case Z is higher than X & Y