The following items are reported on a company's balance sheet: Cash $210,000 Marketable securities 120,000 Accounts receivable (net) 110,000 Inventory 160,000 Accounts payable 200,000 Determine (a) the current ratio and (b) the quick ratio. Round your answers to one decimal place.

Question

Business

Destiny Higgins

10 October, 17:21

The following items are reported on a company's balance sheet: Cash $210,000 Marketable securities 120,000 Accounts receivable (net) 110,000 Inventory 160,000 Accounts payable 200,000 Determine (a) the current ratio and (b) the quick ratio. Round your answers to one decimal place.

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Answers (1)

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Harmon · Answer 1

a. The current ratio: 3.0

b. The quick ratio: 2.2

Explanation:

a. The current ratio is calculated by using following formula:

Current Ratio = Current Assets / Current Liabilities

In the company,

Current Assets = Cash + Marketable securities + Accounts receivable + Inventory = $210,000 + $120,000 + $110,000 + $160,000 = $600,000

Current Liabilities = Accounts payable = $200,000

Current Ratio = $600,000/$200,000 = 3.0

b. The quick ratio is calculated by the following formula:

Quick ratio = (Cash & equivalents + Short Term investments + Accounts receivable) / Current Liabilities = ($210,000 + $120,000 + $110,00) / $200,000 = 2.2