Question

The following items are reported on a company’s balance sheet:Cash $350,000Marketable securities 50,000Accounts receivable 200,000Inventory 240,000Accounts payable 300,000Determine the (a) current ratio, and (b) quick ratio? Round your answer to one digit after the decimal place.

Answer 1

(a) 2.8

(b) 2

Step-by-step explanation:

(a) current assets = $350,000 + $50,000 + $200,000 + $240,000

= $840,000

current liabilities = $300,000

Therefore,

Current ratio = current assets ÷ current liabilities

Current ratio = $840,000 ÷ $300,000

= 2.8

(b) quick ratio = (current assets - inventory) ÷ current liabilities

= ($840,000 - $240,000) ÷ $300,000

= 2