Questions: A company has the following information on its balance sheet. Cash: 10,000 Accounts receivable: 15,000 Inventory: 20,000 Total current assets: 45,000 Accounts payable: 5,000 Deferred revenue: 6,000 Total current liabilities: 11,000 Calculate the company's quick ratio. 3.20 2.09 3.11 2.27

A company has the following information on its balance sheet. Cash: 10,000 Accounts receivable: 15,000 Inventory: 20,000 Total current assets: 45,000 Accounts payable: 5,000 Deferred revenue: 6,000 Total current liabilities: 11,000 Calculate the company's quick ratio. 3.20 2.09 3.11 2.27
Transcript text: A company has the following information on its balance sheet. Cash: \$10,000 Accounts receivable: \$15,000 Inventory: \$20,000 Total current assets: \$45,000 Accounts payable: \$5,000 Deferred revenue: \$6,000 Total current liabilities: \$11,000 Calculate the company's quick ratio. 3.20 2.09 3.11 2.27
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Solution

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The quick ratio, also known as the acid-test ratio, is a measure of a company's ability to meet its short-term obligations using its most liquid assets. The formula for the quick ratio is:

\[ \text{Quick Ratio} = \frac{\text{Cash} + \text{Accounts Receivable}}{\text{Total Current Liabilities}} \]

Given the information from the balance sheet:

  • Cash: $10,000
  • Accounts receivable: $15,000
  • Total current liabilities: $11,000

Now, we can plug these values into the formula:

\[ \text{Quick Ratio} = \frac{10,000 + 15,000}{11,000} = \frac{25,000}{11,000} \approx 2.27 \]

Therefore, the answer is:

The answer is the fourth one (2.27).

Explanation for each option:

  • 3.20: Incorrect. This value is too high based on the given data.
  • 2.09: Incorrect. This value is too low based on the given data.
  • 3.11: Incorrect. This value is too high based on the given data.
  • 2.27: Correct. This is the accurate quick ratio calculated from the provided information.
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