Question

The financial statements of Clearwater Furniture Company include the following items:

2017 2016
Cash $62,500 $57,000
Short − term Investments 29,000 14,000
Net Accounts Receivable 93,000 98,000
Merchandise Inventory 165,000 148,000
Total Assets 532,000 544,000
Total Current Liabilities 227,000 218,000
Long − term Note Payable 63,000 59,000
What is 2017 cash ratio? (Round your answer to two decimal places)

Answer 1

The 2017 cash ratio for Clearwater Furniture Company is 0.40, calculated by dividing its cash and cash equivalents ($62,500 + $29,000) by its total current liabilities ($227,000).

Step-by-step explanation:

The cash ratio is a liquidity ratio that measures a company's ability to pay off its current liabilities with only cash and cash equivalents. To calculate the cash ratio, divide the company's total cash and cash equivalents by its total current liabilities.

The cash and cash equivalents for Clearwater Furniture Company in 2017 are $62,500 (as shown under Cash) plus $29,000 (under Short-term Investments), totaling $91,500. The total current liabilities for 2017 are $227,000.

To calculate the cash ratio, we divide $91,500 by $227,000, which gives us approximately 0.40.

So, the 2017 cash ratio for Clearwater Furniture Company is 0.40 when rounded to two decimal places.