Answer:
The company's acid-test ratio for Year 2 is 1.88 times.
Explanation:
Quick asset ratio :
The quick asset ratio is that ratio which shows a relationship between current assets and current liabilities. But it does not include stock. This ratio is used to check the liquidity of the company.
The formula to compute quick asset ratio is computed below:
= Quick assets ÷ current liabilities
where quick assets includes all current assets except stock.
And, the quick assets value is comprises of cash, short term investment and account receivable.
So, the quick asset value = Cash + short term investment + Account receivable
= $37,500 + $90,000 + $85,500
= $213,000
After computing the quick assets, now we can compute the quick asset ratio by using an formula.
= Quick assets ÷ current liabilities
= $213,000 ÷ $113,400
= 1.88 times
Hence, the company's acid-test ratio for Year 2 is 1.88 times.
