Question

Refer to the following selected financial information from Fennie's, LLC. Compute the company's acid-test ratio for Year 2.

Year 2 Year 1
Cash $37,500 $32,250
Short-term financial assets 90,000 60,000
Accounts receivable, net 85,500 79,500
Merchandise inventory 121,000 125,000
Prepaid expenses 12,100 9,700
Property, plant and equipment 388,000 338,000
Accounts payable 113,400 107,800
Net sales 711,000 676,000
Cost of goods sold 390,000 375,000

Multiple-Choice :
A. 2.0
B. 3.0
C. 2.3
D. 3.1
E. 1.9

Answer 1

To calculate Fennie's, LLC's acid-test ratio for Year 2, we require more information than provided, specifically cash, marketable securities, receivables, and current liabilities. Without these figures from the company's balance sheet, the ratio cannot be determined.

Step-by-step explanation:

The question asks us to calculate the acid-test ratio for Fennie's, LLC for Year 2. However, the provided financial information is not sufficient for this calculation. The acid-test ratio, also known as the quick ratio, measures a company's ability to cover its current liabilities without selling its inventory by comparing its most liquid assets (cash, marketable securities, and receivables) to its current liabilities.

The formula for the acid-test ratio is:

Acid-Test Ratio = (Cash + Marketable Securities + Receivables) / Current Liabilities

Since the necessary figures to compute the acid-test ratio are not given in the question, we are unable to provide the final ratio. To accurately calculate the ratio, we would need the values for cash, marketable securities, receivables, and current liabilities from Fennie's, LLC's balance sheet for Year 2.