Question

Use the following information to answer this question. Windswept, Inc. 2017 Income Statement ($ in millions) Net sales $ 8,850 Cost of goods sold 7,360 Depreciation 425 Earnings before interest and taxes $ 1,065 Interest paid 88 Taxable income $ 977 Taxes 342 Net income $ 635 Windswept, Inc. 2016 and 2017 Balance Sheets ($ in millions) 2016 2017 2016 2017 Cash $ 150 $ 180 Accounts payable $ 1,050 $ 1,185 Accounts rec. 840 740 Long-term debt 1,020 1,220 Inventory 1,570 1,575 Common stock 3,180 3,010 Total $ 2,560 $ 2,495 Retained earnings 560 810 Net fixed assets 3,250 3,730 Total assets $ 5,810 $ 6,225 Total liab. & equity $ 5,810 $ 6,225 What is the quick ratio for 2017? Multiple Choice

A)2.11 times
B)1.33 times
C).78 times
D)1.95 times
E).75 times

Answer 1

The quick ratio for Windswept, Inc. in 2017 is calculated to be 0.78 times by dividing the sum of cash and accounts receivable by current liabilities, aligning with option C).

Step-by-step explanation:

To calculate the quick ratio for Windswept, Inc. for the year 2017, we need to use the following formula:

Quick Ratio = (Cash + Accounts Receivable) / Current Liabilities

From the balance sheets provided, we have:

Cash (2017): $180 million

Accounts Receivable (2017): $740 million

Current Liabilities (Accounts payable + Short term portion of long-term debt): $1,185 million

Inventory is not included in the quick ratio calculation as it is not considered as liquid as cash and receivables. The quick ratio for Windswept, Inc. for 2017 is calculated as follows:

Quick Ratio = ($180 million + $740 million) / $1,185 million = $920 million / $1,185 million = 0.78 times

Therefore, the quick ratio for Windswept, Inc. in 2017 is 0.78 times, which corresponds to option C).