Question

In: Accounting

The following items are reported on a company's balance sheet: Cash $292,600 Marketable securities 93,000 Accounts...

The following items are reported on a company's balance sheet:

Cash $292,600
Marketable securities 93,000
Accounts receivable 251,700
Inventory 178,500
Accounts payable 318,800

Determine the (a) current ratio, and (b) quick ratio. Round your answers to one decimal place.

a. Current ratio
b. Quick ratio

Solutions

Expert Solution

a. Calculation of Current ratio is as follows:

Current Ratio = Current Assets / Current Liabilities

= $ 815,800 / $ 318,800

= 2.6

Thus, Current ratio is 2.6

Working Note:

1. Current Assets consist of followings:

Current Asset Amount
Cash $ 2,92,600
Marketable securities $    93,000
Accounts receivable $ 2,51,700
Inventory $ 1,78,500
Total Current Assets $ 8,15,800

2. Current liabilities consist of followings:

Current Liabilities Amount
Accounts Payable $ 3,18,800
Total Current Liabilities $ 3,18,800

b. Calculation of Quck ratio is as follows:

Quick Ratio = ( Cash + Marketable Securities + Accounts Receivable) / Current Liabilities

= ( $ 292,600 + $ 93,000 + $ 251,700 ) / $ 318,800

= $ 637,300 / $ 318,800

= 2.0

Thus, Quick ratio is 2.0

Working Note:

1. Marketable Securities are those which can easily converted in cash. Thus, Considered in Quick assets

2. Inventory can not converted in cash easily unless it gets sold thus, not considered in Quick assets

Note: answers are rounded off to one decimal place as per question requirement.


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