Question

Presented below is information related to Tolbert Company.

Current Assets

Cash $ 4,000
Short-term investments 75,000
Accounts receivable 61,000
Inventories 110,000
Prepaid expenses 30,000
Total current assets $280,000

Total current liabilities are $100,000. What is the acid-test ratio?

a. 2.8 to 1.
b. 2.5 to 1.
c. 1.4 to 1.
d. 0.8 to 1.

Answer 1

Option (c) is correct.

Step-by-step explanation:

Given that,

Cash = $4,000

Short-term investments = $75,000

Accounts receivable = $61,000

Inventories = $110,000

Prepaid expenses = $30,000

Total current liabilities = $100,000

Current assets:

= Cash + Short-term investments + Accounts receivable

= $4,000 + $75,000 + $61,000

= $140,000

Therefore,

Acid-test ratio:

= Current assets ÷ Current liabilities

= $140,000 ÷ $100,000

= 1.4 to 1