Question

Selected financial data regarding current assets and current liabilities for Queen's Line, a competitor in the cruise line industry, is provided: ($ in millions) Current assets: Cash and cash equivalents $ 410 Current investments 65 Net receivables 204 Inventory 136 Other current assets 145 Total current assets $ 960 Current liabilities: Accounts payable $ 1,032 Short-term debt 744 Other current liabilities 869 Total current liabilities $ 2,645 Required: 1. Calculate the current ratio and the acid-test ratio for Queen's Line.

Answer 1

Answer and Explanation:

The computation of the current ratio and the acid test ratio is shown below:

As we know that

Current ratio = Total Current assets ÷ total current liabilities

= $960 ÷ $2,645

= 0.36 times

And, the acid test ratio is

Current ratio = (Total Current assets - inventory - other current assets) ÷ total current liabilities

= ($960 - $136 -$145) ÷ $2,645

= 0.26 times

We simply applied the above formulas for determining the current ratio and acid test ratio