Question

As of December 31, the Stanford company has the following information. Use this information to answer questions 1 to 3. Cash $5,000 Accounts Receivable 15,000 Inventory 40,000 Prepaid Insurance 3000 Long-term Assets 100,000 Accounts Payable 15,000 Notes Payable in 5 Months 12,500 Salary Payable 25,000 Notes Payable in 5 Years 35,000 Owner’s Equity 98,000 1. What is the company's Quick Ratio? Question 1 options: 1.70 0.70 0.38 1.25

Answer 1

0.38

Step-by-step explanation:

Answer 2

C. Quick Ratio = 0.38

Step-by-step explanation:

We know,

Quick Ratio =
`(Current Assets - Inventory - Prepaid Expenses)/(Current Liabilities)`

Quick ratio means how quickly a company can pay its current debt with its quick assets.

Given,

Current Assets = Cash + Accounts Receivable + Inventory + Prepaid Insurance

Current Assets = $(5,000 + 15,000 + 40,000 + 3,000) = $63,000

Current Liabilities = Accounts Payable + Notes Payable in 5 Months + Salary Payable

Current Liabilities = $(15,000 + 12,500 + 25,000) = $52,500

Putting the value in the formula,

Quick Ratio =
`(63,000 - 40,000 - 3,000)/(52,500)`

Quick Ratio = $(20,000 ÷ 52,500)

Quick Ratio = 0.38 : 1

Therefore, the quick ratio is 0.38, and the option is "C"