Question

Computing and analyzing acid-test and current ratios

Answer 1

Answer:

Current ratio- 2.03  2.33  1.73 and Acid-test ratio- 0.98  0.43  0.60              

Explanation:

Attach is the table of given cases

Acid test ratio= $\frac{cash+Short\ term\ investments+ Current\ receivables }{Current\ liabilities}$

Now, solving for acid test ratio.

Case x

⇒ Acid test ratio= $\frac{1800+0+150}{2000}$

⇒ Acid test ratio= $\frac{1950}{2000}$

∴ Acid test ratio= $0.975 \approx 0.98$

Case y

⇒ Acid test ratio= $\frac{120+0+400}{1210}$

⇒ Acid test ratio= $\frac{520}{1210}$

∴ Acid test ratio= $0.429 \approx 0.43$

Case Z

⇒ Acid test ratio= $\frac{1000+400+400}{3000}$

⇒ Acid test ratio= $\frac{1800}{3000}$

∴ Acid test ratio= $0.60$

Next solving for current ratio.

We know, current ratio= $\frac{Current\ assets}{Current\ liability}$

Case x

⇒ current ratio= $\frac{4050}{2000}$

∴ current ratio= $2.025 \approx 2.03$

Case y

⇒ current ratio= $\frac{2820}{1210}$

∴ current ratio= $2.33$

Case Z

⇒ current ratio= $\frac{5200}{3000}$

∴ current ratio= $1.73$

Hence, Current ratio- 2.03  2.33  1.73 and Acid-test ratio- 0.98  0.43  0.60