Question

Adieu Company reported the following current assets and liabilities for December 31 for two recent years:

Dec. 31, Current Year Dec. 31, Previous Year
Cash $1,000 $1,140
Temporary investments 1,200 1,400
Accounts receivable 800 910
Inventory 2,200 2,300
Accounts payable 1,875 2,300

Required:
a. Compute the quick ratio on December 31 of both years.
b. Is the quick ratio improving or declining?

Answer 1

a. Current year = 1.6

Previous year = 1.5

b. Improving

Step-by-step explanation:

a. The computation of quick ratio is shown below:-

For Current year

Quick ratio = Quick assets ÷ Current liabilities

= ($1,000 + $1,200 + $800) ÷ $1,875

= $3,000 ÷ $1,875

= 1.6

For Previous year

Quick ratio = Quick assets ÷ Current liabilities

= ($1,140 + $1,400 + $910) ÷ $2,300

= $3,450 ÷ $2,300

= 1.5

b. according to the above computation, the quick ratio is improving.