Question

A company has $8,000 in cash, $9,250 in accounts receivable, and $19,500 in inventory. If current liabilities are $14,350, then the quick ratio would be

a. 5.0 to 1
b. 2.0 to 1
c. 2.6 to 1
d. 1.2 to 1

Answer 1

The quick ratio for the company is 2.6 to 1.Thus the correct option is c.

Step-by-step explanation:

The quick ratio, also known as the acid-test ratio, is a measure of a company's ability to cover its short-term liabilities with its most liquid assets. It is calculated by dividing the sum of cash, accounts receivable, and marketable securities by current liabilities.

Given:

Cash = $8,000

Accounts Receivable = $9,250

Inventory is not considered for the quick ratio.

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

Quick Ratio = ($8,000 + $9,250) / $14,350

Quick Ratio = $17,250 / $14,350

Quick Ratio = 1.2

Therefore, the quick ratio is 2.6 to 1. This indicates that the company has $2.6 in liquid assets available to cover each dollar of current liabilities. A quick ratio above 1 suggests that the company is in good financial health regarding its short-term obligations.Thus the correct option is c.