Smith Corporation has current assets of $11,400, inventories of $4,000, and a current ratio of 2.6. What is Smith's quick or acid test ratio?
A) 1.69
B) 0.54
C) 0.74
D) 1.35

Question

Quizplus · Accepted Answer

The quick or acid test ratio is calculated by subtracting inventories from current assets and then dividing by current liabilities. Given a current ratio of 2.6 and current assets of $11,400, we can find current liabilities = $11,400 / 2.6 = $4,384.62. The quick assets (current assets - inventories) = $11,400 - $4,000 = $7,400. Therefore, the quick ratio = $7,400 / $4,384.62 ≈ 1.69.

Smith Corporation Has Current Assets of $11,400, Inventories of $4,000