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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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  1. 10 October, 17:28
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    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
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