Question 1

Generally,the higher the acid-test ratio the easier it is for an organization to pay its current liabilities.

Accepted Answer

The acid-test ratio (also known as quick ratio) measures the ability of an organization to pay off its current liabilities quickly using its current assets. A higher acid-test ratio indicates that the organization has enough liquid assets (cash or accounts receivable) to cover its short-term obligations. Therefore, it is easier for the organization to pay its current liabilities.

Question 2

An increase in the acid-test ratio from one year to the next indicates the company's liquidity position is likely improving.

Accepted Answer

The acid-test ratio, also known as the quick ratio, measures a company's ability to pay its short-term obligations using only quick assets (cash, marketable securities, and accounts receivable). An increase in this ratio from one year to the next means that the company has increased its quick assets compared to its current liabilities, which indicates an improvement in liquidity.

Question 3

Vista Inc.had the following balances in selected accounts at the end of 2016 and 2017.
  The accounts receivable at the end of 2015 were $50,000 and the allowance for uncollectible accounts was $2,500.
Required:
a.Calculate the acid test ratio for 2016 and 2017 for Vista Inc.
b.Calculate the days' sales in receivables for 2016 and 2017 for Vista Inc.
c.Determine whether the acid-test ratio improved or deteriorated from 2016 to 2017.
d.Determine whether the collection period increased or decreased from 2016 to 2017.

Accepted Answer

The answer of Vista Inc.had the following balances in selected...

Question 4

Given the following information calculate the 2016 and 2017 acid-test ratios for Smart-T.:
  Is Smart-T's liquidity situation improving?
Note: 2015 net accounts receivables = $40,000

Accepted Answer

The answer of Given the following information calculate the 2016...

Question 5

A company with net sales of $500,000,a beginning balance of net receivables of $80,000,and an ending balance of net receivables of $90,000 has a collection period of:

Accepted Answer

First, calculate the average net receivables:
(80,000 + 90,000) ÷ 2 = 85,000

Then, divide the average net receivables by the daily credit sales:
85,000 ÷ (500,000 ÷ 365) =

85,000 ÷ 1,369.86 ≈ 62

Therefore, the collection period is 62 days.

Question 6

A company with net sales of $850,000,a beginning balance of net receivables of $230,000,and an ending balance of net receivables of $190,000 has a days' sales in receivables of:

Accepted Answer

Days' sales in receivables measures how long it takes for a company to collect its accounts receivable. The formula for calculating days' sales in receivables is:

(Days in period * Net receivables) / Net sales

In this case, the days in the period is assumed to be 365 days.

Using the formula:

(365 * (($230,000 + $190,000) / 2)) / $850,000 = 90.14 days

Rounding to the nearest whole number gives us 90 days. So the company has a days' sales in receivables of 90 days.

Question 7

The accountant at Intellectual Property Inc.gathered the following selected accounting information:
  Required:
a.Compute the acid-test ratio for 2016 and 2017.
b.Compute the days' sales in average receivables for 2016 and 2017.
Net accounts receivable on December 31,2015 was $27,000.

Accepted Answer

The answer of The accountant at Intellectual Property Inc.gathered the...

Question 8

The days sales in receivables ratio is computed as average net accounts receivable divided by 365 days.

Accepted Answer

The days' sales in receivables ratio is computed as average net accounts receivable divided by net credit sales, then multiplied by 365 days.

Question 9

Cash collected from accounts receivable is shown on the cash flow statement as a(n):

Accepted Answer

Cash collected from accounts receivable is a result of the company's regular operations, therefore it is classified as an operating activity on the cash flow statement.

Question 10

The quick ratio helps investors measure the organization's liquidity.

Accepted Answer

The quick ratio, also known as the acid-test ratio, is a measure of a company's liquidity and ability to meet short-term obligations. It takes into account only the most liquid assets, such as cash and accounts receivable, and compares them to current liabilities. A higher quick ratio indicates that a company is better equipped to pay off its short-term debts. Therefore, the statement is true.

Question 11

A decrease in the acid-test ratio from one year to the next indicates the company's liquidity position is likely improving.

Accepted Answer

The acid-test ratio measures a company's ability to pay off its current liabilities with quick assets (cash, marketable securities, and accounts receivable) and excludes inventory and prepaid expenses. A decrease in this ratio indicates that the company has less liquidity as it has a smaller amount of quick assets compared to its current liabilities. Therefore, a decrease in the acid-test ratio from one year to the next indicates that the company's liquidity position is likely deteriorating rather than improving.

Question 12

Which of the following are excluded from the numerator in the calculation of the acid-test ratio?

Accepted Answer

The acid-test ratio, also known as the quick ratio, is a more stringent measure of a company's liquidity than the current ratio. It excludes inventory and prepaid expenses from the numerator because these items may be difficult to convert into cash quickly. Therefore, only Choice C inventory and prepaid expenses are excluded from the numerator in the calculation of the acid-test ratio.

Question 13

Content Integration Inc.has $25,000 in cash,$40,000 in short-term investments,$55,000 in net current receivables,and $12,000 in prepaid expenses.The total current liabilities of the firm are $190,000.Jupiter Precision's acid-test ratio is:

Accepted Answer

The acid-test ratio is calculated as (Cash + Short-term investments + Net current receivables) / Current liabilities. Here, it is ($25,000 + $40,000 + $55,000) / $190,000 = $120,000 / $190,000 = 0.63.

Question 14

The current ratio is calculated by taking the total of all current assets except inventory divided by the total of all current liabilities.

Accepted Answer

The current ratio is calculated by taking the total of all current assets (including inventory) divided by the total of all current liabilities.

Question 15

The acceptable acid-test ratio varies by industry.

Accepted Answer

Different industries have different levels of inventory turnover and accounts receivable collection, which can affect the acceptable acid-test ratio. For example, a retail industry may have a higher acceptable ratio than a manufacturing industry, where inventory turnover is slower.

Quiz 4: Cash and Receivables