Data from Fontecchio Corporation's most recent balance sheet appear below: The corporation's acid-test ratio is closest to:
A)0.35
B)0.15
C)0.68
D)0.79

Question

Data from Fontecchio Corporation's most recent balance sheet appear below:  The corporation's acid-test ratio is closest to:
A)0.35 
B)0.15 
C)0.68 
D)0.79

Quizplus · Accepted Answer

The acid-test ratio (also known as quick ratio) is calculated by adding up the quick assets and dividing them by the current liabilities. Quick assets include cash, marketable securities, and accounts receivables. From the balance sheet provided, we can calculate the total quick assets to be $3,000 + $6,000 + $1,500 = $10,500. Current liabilities are given as $15,500. Therefore, the acid-test ratio is 10,500/15,500 = 0.68, which is closest to choice letter C. Quick assets = Cash + Marketable securities + Accounts receivable + Short-term notes receivable
= $18,000 + $24,000 + $39,000 + $0 = $81,000
Acid-test ratio = Quick assets ÷ Current liabilities
= $81,000 ÷ $120,000 = 0.675

Data from Fontecchio Corporation's Most Recent Balance Sheet Appear Below