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Balance Sheet Current assets Cash 870,000 Acc receivable not given Inventories 1,050,000 Fixed assets 3,220,000 TOTAL...

Balance Sheet
Current assets
Cash 870,000
Acc receivable not given
Inventories 1,050,000
Fixed assets 3,220,000
TOTAL ASSETS 6,200,000

Current liabilities
Acc payable not given
Long-term debt 1,900,000
Common stock 680,000
Retained earnings 3,190,000
TOTAL LIAB and EQUITY 6,200,000

Income Statement
Sales 18,600,000
Operating expense 14,320,000
EBIT 4,280,000
Interest expense 266,000
EBT 4,014,000
Taxes 1,606,000
Net income 2,408,000

What is the firm's quick ratio?

Solutions

Expert Solution

Formula for quick ratio is:

Quick ratio = Current assets – Inventories / Current liabilities

Now, we will calculate the components of quick ratio as below:

First we will calculate accounts receivable by the following equation:

Total assets = Cash + Accounts receivables + Inventories + Fixed assets

Putting the values in the above equation, we get,

$6200000 = $870000 + Accounts receivables + $1050000 + $3220000

$6200000 = $5140000 + Accounts receivable

Accounts receivable = $62200000 - $5140000

Accounts receivable = $1080000

Next we will calculate current assets as per below:

Current assets = Cash + Accounts receivable + Inventories

Current assets = $870000 + $1080000 + $1050000 = $3000000,

Next, we will calculate accounts payable by the following equation:

Total liabilities & equity = Accounts payable + Long term debt + Common stock + Retained earnings

Putting the values in the above equation, we get,

$6200000 = Accounts payables + $1900000 + $680000 + $3190000

$6200000 = Accounts payable + $5770000

Accounts payable = $62200000 - $5770000

Accounts payable = $430000

Next we will calculate current liabilities as per below:

Current liabilities = Accounts payable = $430000

Now,

Quick ratio = Current assets – Inventories / Current liabilities

Current assets = $3000000, Current liabilities = $430000, Inventories = $1050000

Quick ratio = ($3000000 - $1050000) / $430000

Quick ratio = $1950000 / $430000 = 4.53

jeff jeffy answered 1 year ago
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