Question

Airline Accessories has the following current assets: cash, $92 million; receivables, $84 million; inventory, $172 million; and other current assets, $8 million. Airline Accessories has the following liabilities: accounts payable, $78 million; current portion of long-term debt, $25 million; and long-term debt, $13 million. Based on these amounts, calculate the current ratio and the acid-test ratio for Airline Accessories. (Enter your answers in millions, not in dollars. For example, $5,500,000 should be entered as 5.5.)

Answer 1

Current ratio 3.46

Acid-test ratio 1.71

Step-by-step explanation:

A. Calculation to determine Current ratio

Using this formula

Current ratio =Current assets/Current liablities

Let plug in the formula

Current ratio=$92 million+$84 million+$172 million+$8 million/$78 million+$25 million

Current ratio=$356 million/$103 milion

Current ratio=3.46

B. Calculation to determine the acid-test ratio

Acid-test ratio=$92 million+$0+$84 million/$78 million+$25 million

Acid-test ratio=$176 million/$103 million

Acid-test ratio=1.71