Question

Blackwell Automotive’s balance sheet at the end of its most recent fiscal year shows the following information: Blackwell Automotive Balance Sheet as of March 31, 2013 Assets Liabilities and Equity Cash and marketable securities $18,940 Accounts payable and accruals $163,257 Accounts receivable 128,840 Notes payable 21,115 Inventories 228,937 Total current assets $376,717 Total current liabilities $184,372 Long-term debt 168,022 Total liabilities $352,394 Net plant and equipment 711,256 Common stock 313,299 Goodwill and other assets 89,879 Retained earnings 512,159 Total assets $1,177,852 Total liabilities and equity $1,177,852 In addition, it was reported that the firm had a net income of $412,000 on net sales of $4,240,000. a. What are the firm’s current ratio and quick ratio? (Round answers to 2 decimal places, e.g.15.25.) Current Ratio times Quick Ratio times

Answer 1

Answer:

Current Ratio is 2.04 times

Quick Ratio is 0.80 times

Explanation:

a. Current Ratio : The current ratio is that ratio which shows  relationship between current assets and current liabilities. It is computed to check the liquidity of the firm.

Current Ratio = Current Assets ÷ Current Liabilities

                      = $376,717 ÷ $184,372

                      = 2.04 times

Thus, the current ratio is 2.04 times

b. Quick Ratio : The Quick ratio is also check the liquidity of the company but while computing it does not include inventories.

Quick Ratio = (Current Assets - Stock) ÷ Current Liabilities

                   = ($376,717 - $228,937)  ÷ $184,372

                   = 0.80 times

Thus, the quick ratio is 0.80 times