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19 July, 04:52

Gmeiner Co. had the following current assets and liabilities on December 31 of two recent years: Current Year Previous Year Current assets: Cash $640,000 $866,000 Accounts receivable 567,000 407,000 Inventory 350,000 344,000 Total current assets $1,557,000 $1,617,000 Current liabilities: Current portion of long-term debt $114,000 $101,000Accounts payable 227,000 201,000 Accrued and other current liabilities 369,000 368,000 Total current liabilities $710,000 $670,000 Determine the quick ratio for December 31 of both years.

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  1. 19 July, 07:29
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    Answer: The acid test ratio for current year is 1.7 while the acid test ratio for previous year is 1.9

    Explanation:

    Current Year

    Current Asset

    $

    Cash 640,000

    Account Receivable 567,000

    Inventory 350,000

    Total. 1,557,000

    Previous Year

    $

    Current Asset

    Cash 866,000

    Account Receivable 407,000

    Inventory 344,000

    Total. 1,617,000

    Current Year

    Current Liabilities

    $

    Long term debt 114,000

    Account Payable 227,000

    Account and other current Liabilities 369,000

    Total. 710,000

    Previous Year

    Current Liabilities

    $

    Long term debt 101,000

    Account Payable 201,000

    Account and other current Liabilities 368,000

    Total 670,000

    To calculate acid test ratio for current year

    Current Asset - Stock/Current Liabilities

    1,557,000 - 350,000/710,000

    = 1,207,000/710,000

    =1.7

    To calculate acid test ratio for previous year

    Current Asset - Stock/Current Liabilities

    1,617,000 - 344,000/670,000

    = 1,273,000/670,000

    = 1.9

    Therefore the acid test ratio for current year is 1.7, while the acid test ratio for previous year is 1.9
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