Question

In: Accounting

Selected financial data regarding current assets and current liabilities for ACME Corporation and Wayne Enterprises, are...

Selected financial data regarding current assets and current liabilities for ACME Corporation and Wayne Enterprises, are as follows:


  ($ in millions) ACME Corporation Wayne Enterprises
  Current assets:
       Cash and cash equivalents $     407      $    165   
       Current investments 6      463   
       Net receivables 706      86   
       Inventory 10,653      7,409   
       Other current assets 1,215      135   
           Total current assets $ 12,987      $ 8,258   
  Current liabilities:
       Current debt $   7,421      $ 4,229   
       Accounts payable and accrued liabilities 1,687      941   
       Other current liabilities 1,193      2,375   
           Total current liabilities $ 10,301      $ 7,545   

2-a. Calculate the acid-test (quick) ratio for ACME Corporation and Wayne Enterprises. (Enter your answers in millions. (i.e., $5,500,000 should be entered as 5.5.))

why 2,334 for ACME corporation (quick assets is wrong ??

as well as why 849 for Wayne enterprises (quick assets is wrong ??

Solutions

Expert Solution

Acid test ratio / Quick ratio: This is used to calculate the efficiency at which the company can solve it current liabilities through its realization of quick assets.

Quick assets: Assets which can be realized in a very quick span of time say for less than 90 days. It excludes inventories and other prepayments

Current assets: Assets which are realized with a year which includes inventories and all other kinds of prepayments.

1. Quick ratio for ACME corporation = Current assets - inventories / Current liabilities

= 12987 - 10653 / 10301 = 2334 / 10301 = 0.226

2. Quick ratio for Wayne enterprise = Current assets - inventories/ Current liabilities

= 8258 - 7409 / 7545 = 849 / 7545 = 0.1125

Quick ratio for ACME corporation is higher compared to Wayne enterprise which means ACME can solve its current liabilities quicker than Wayne enterprises.

* Quick assets in both the categories include 'other current assets' as prepayments are not specifically mentioned in that. if so, other current assets is deducted from the current assets to obtain quick assets then

1. For ACME corporation = 0.1086

2, For Wayne enterprises = 0.0946

Also, the reason for 2334 or 849 is provided above including or excluding the 'other current assets'. Quick assets are not wrong but provided the above condition is known.

ekkarill92 answered 1 year ago
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