In: Accounting
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 |
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.