Answer: The acid test ratio for current year is 1.7 while the acid test ratio for previous year is 1.9
Explanation:
Current Year
Current Asset
$
Cash 640,000
Account Receivable 567,000
Inventory 350,000
Total. 1,557,000
Previous Year
$
Current Asset
Cash 866,000
Account Receivable 407,000
Inventory 344,000
Total. 1,617,000
Current Year
Current Liabilities
$
Long term debt 114,000
Account Payable 227,000
Account and other current Liabilities 369,000
Total. 710,000
Previous Year
Current Liabilities
$
Long term debt 101,000
Account Payable 201,000
Account and other current Liabilities 368,000
Total 670,000
To calculate acid test ratio for current year
Current Asset - Stock/Current Liabilities
1,557,000 - 350,000/710,000
= 1,207,000/710,000
=1.7
To calculate acid test ratio for previous year
Current Asset - Stock/Current Liabilities
1,617,000 - 344,000/670,000
= 1,273,000/670,000
= 1.9
Therefore the acid test ratio for current year is 1.7, while the acid test ratio for previous year is 1.9
