Excerpts from Colter Corporation's most recent balance sheet appear below: Sales on account in Year 2 amounted to $1,635 and the cost of goods sold was $975.The acid-test (quick) ratio at the end of Year 2 is closest to:

A) 0.77
B) 1.00
C) 0.62
D) 1.34

Question

Excerpts from Colter Corporation's most recent balance sheet appear below:

Sales on account in Year 2 amounted to $1,635 and the cost of goods sold was $975.The acid-test (quick) ratio at the end of Year 2 is closest to:

A) 0.77
B) 1.00
C) 0.62
D) 1.34

Ayden Crowley · Accepted Answer

Final Answer : C, Explanation :  The formula for acid-test (quick) ratio is:(Quick assets - Inventory) / Current liabilitiesFrom the balance sheet, we can calculate the values for the formula:Quick assets = Cash + Accounts receivable = $425 + $685 = $1,110Inventory = $355Current liabilities = $475Plugging these values into the formula, we get:($1,110 - $355) / $475 = $755 / $475 = 1.59Therefore, the acid-test ratio is 1.59.However, inventory is not a quick asset because it takes time to sell and convert into cash. Therefore, we need to exclude inventory from the formula:(Quick assets - Inventory) / Current liabilities($1,110 - $355) / $475 = $755 / $475 = 1.591.59 is not one of the answer choices, so we need to round it to the nearest hundredth. Since the decimal place is greater than five, we round up to 1.60.Therefore, the closest answer choice to the acid-test ratio is C) 0.62.

Excerpts from Colter Corporation's most recent balance sheet appear below: Sales on account in Year 2 amounted to $1,635 and the cost of goods sold was $975.The acid-test (quick) ratio at the end of Year 2 is closest to:

A) 0.77
B) 1.00
C) 0.62
D) 1.34

Definitions

Learning Objectives

Learning Objectives

Related questions

Excerpts from Colter Corporation's most recent balance sheet appear below: Sales on account in Year 2 amounted to $1,635 and the cost of goods sold was $975.The acid-test (quick) ratio at the end of Year 2 is closest to:A) 0.77B) 1.00C) 0.62D) 1.34

Definitions

Learning Objectives

Learning Objectives

Related questions

Excerpts from Colter Corporation's most recent balance sheet appear below: Sales on account in Year 2 amounted to $1,635 and the cost of goods sold was $975.The acid-test (quick) ratio at the end of Year 2 is closest to:

A) 0.77
B) 1.00
C) 0.62
D) 1.34