Question

Atâ year-end, Snowâ, Inc. has cash of $ 15,000â, current accounts receivable of $ 30,000â, merchandise inventory of $ 40,200â, and prepaid expenses totaling $ 4,500. Liabilities of $ 60,000 must be paid next year. What is Snow's âacid-test ratio?

Answer 1

Answer:

0.75 times

Explanation:

The formula and the calculation of acid test ratio is presented below

Acid test ratio = Quick assets ÷ total current liabilities  

where,  

Quick assets = Cash + current accounts receivable

= $15,000 + $30,000

= $45,000

And, the current liabilities is $60,000

So, the acid test ratio would be

= $45,000 ÷ $60,000

= 0.75 times