The data of Franklin Brothers Corp.for two years are given below. Based on the above information,which of the following statements is true?
A)Cash ratio has increased from 0.02 in 2014 to 0.03 in 2015.
B)Cash ratio has increased from 0.05 in 2014 to 0.08 in 2015.
C)Cash ratio has increased from 0.417 in 2014 to 0.225 in 2015.
D)Cash ratio has increased from 0.225 in 2014 to 0.417 in 2015.

Question

The data of Franklin Brothers Corp.for two years are given below.  Based on the above information,which of the following statements is true?
A)Cash ratio has increased from 0.02 in 2014 to 0.03 in 2015. 
B)Cash ratio has increased from 0.05 in 2014 to 0.08 in 2015. 
C)Cash ratio has increased from 0.417 in 2014 to 0.225 in 2015. 
D)Cash ratio has increased from 0.225 in 2014 to 0.417 in 2015.

Quizplus · Accepted Answer

The cash ratio is calculated as (Cash + Marketable securities) / Current liabilities. 
For 2014: (1200+300) / 4800 = 0.25 
For 2015: (1400+250) / 3600 = 0.417 
Therefore, the cash ratio has increased from 0.225 in 2014 to 0.417 in 2015, so option D is the correct choice. Options A and B are false as they show an increase in cash ratio, but the actual increase is much higher. Option C is also false as it shows a decrease in the cash ratio, which is not the case.

The Data of Franklin Brothers Corp