Question

Selected financial data regarding current assets and current liabilities for Queen's Line, a competitor in the cruise line industry, is provided: ($ in millions) Current assets: Cash and cash equivalents $ 410 Current investments 65 Net receivables 204 Inventory 136 Other current assets 145 Total current assets $ 960 Current liabilities: Accounts payable $ 1,032 Short-term debt 744 Other current liabilities 869 Total current liabilities $ 2,645 Required: 1. Calculate the current ratio and the acid-test ratio for Queen's Line. (Enter your answers in millions, not in dollars. For example, $5,500,000 should be entered as 5.5.)

Answer 1

Answer and Explanation:

The calculation of the current ratio and the acid ratio is shown below;

The current ratio is

= Current assets ÷ current liabilities

= $960 ÷ $2,645

= 0.3629 times

The quick ratio is

= Quick assets ÷ current liabilities

Here quick assets is

= Current assets - inventory - other current assets

= $960 - $136 - $145

= $679

So, the quick rato or acid test ratio is

= $679 ÷ $2,645

= 0.2567 times