Question

Computing and analyzing acid-test and current ratios

Case X Case Y Case Z
Cash $1,800 $120 $1,000
Short-term investments 0 0 400
Current receivables 150 400 400
Inventory 1,900 1,800 2,500
Prepaid expenses 200 500 900
Total current assets $4,050 $2,820 $5,200
Current liabilities $2,000 $1,210 $3,000

Required:
Compute the current ratio and acid-test ratio for each of the above separate cases. Round your answers to 2 decimal places.

Answer 1

Current ratio- 2.03 2.33 1.73 and Acid-test ratio- 0.98 0.43 0.60

Step-by-step explanation:

Attach is the table of given cases

Acid test ratio=
`(cash+Short\ term\ investments+ Current\ receivables )/(Current\ liabilities)`

Now, solving for acid test ratio.

Case x

⇒ Acid test ratio=
`(1800+0+150)/(2000)`

⇒ Acid test ratio=
`(1950)/(2000)`

∴ Acid test ratio=
`0.975 \approx 0.98`

Case y

⇒ Acid test ratio=
`(120+0+400)/(1210)`

⇒ Acid test ratio=
`(520)/(1210)`

∴ Acid test ratio=
`0.429 \approx 0.43`

Case Z

⇒ Acid test ratio=
`(1000+400+400)/(3000)`

⇒ Acid test ratio=
`(1800)/(3000)`

∴ Acid test ratio=
`0.60`

Next solving for current ratio.

We know, current ratio=
`(Current\ assets)/(Current\ liability)`

Case x

⇒ current ratio=
`(4050)/(2000)`

∴ current ratio=
`2.025 \approx 2.03`

Case y

⇒ current ratio=
`(2820)/(1210)`

∴ current ratio=
`2.33`

Case Z

⇒ current ratio=
`(5200)/(3000)`

∴ current ratio=
`1.73`

Hence, Current ratio- 2.03 2.33 1.73 and Acid-test ratio- 0.98 0.43 0.60