Question

Jones Corp. reported current assets of $191,000 and current liabilities of $136,000 on its most recent balance sheet. The current assets consisted of $62,400 Cash; $43,600 Accounts Receivable; and $85,000 of Inventory. The acid-test (quick) ratio is:

Answer 1

The acid-test ratio for Jones Corp. is calculated by dividing the sum of Cash ($62,400) and Accounts Receivable ($43,600) by the Current Liabilities ($136,000), which equals approximately 0.7794. This indicates that Jones Corp. has about 78 cents in liquid assets for every dollar of current liability.

Step-by-step explanation:

The student's question is about calculating the acid-test (quick) ratio, which is a measure of a company's short-term liquidity, more stringent than the current ratio. It considers only the most liquid assets that can quickly be converted to cash. The acid-test ratio is calculated using the formula:

Acid-test Ratio = (Cash + Marketable Securities + Accounts Receivable) / Current Liabilities

In the context of Jones Corp., the calculation would be:

Acid-test Ratio = ($62,400 Cash + $43,600 Accounts Receivable) / $136,000 Current Liabilities

Therefore, the acid-test ratio for Jones Corp. is:

Acid-test Ratio = $106,000 / $136,000 = 0.7794

This ratio indicates that for every dollar of current liabilities, Jones Corp. has approximately 78 cents in liquid assets.