Excerpts from Sydner Corporation's most recent balance sheet appear below: Sales on account in Year 2 amounted to $1,390 and the cost of goods sold was $900. The acid-test ratio at the end of Year 2 is closest to:
A)1.67
B)1.00
C)0.97
D)1.25

Question

Excerpts from Sydner Corporation's most recent balance sheet appear below:  Sales on account in Year 2 amounted to $1,390 and the cost of goods sold was $900. The acid-test ratio at the end of Year 2 is closest to:
A)1.67 
B)1.00 
C)0.97 
D)1.25

Quizplus · Accepted Answer

First, we need to calculate the current assets and current liabilities to calculate the acid-test ratio:

Current Assets: 
Cash and cash equivalents = $40 
Accounts receivable = $570 
Inventory = $640

Total Current Assets = $40 + $570 + $640 = $1,250

Current Liabilities: 
Accounts payable = $420

Total Current Liabilities = $420

Then we can calculate the acid-test ratio:

Acid-Test Ratio = (Current Assets - Inventory) / Current Liabilities

Acid-Test Ratio = ($1,250 - $640) / $420 = $610 / $420 = 1.45

Therefore, the acid-test ratio at the end of Year 2 is closest to 1.45, which is not an answer choice. However, we can see that answer choice C, 0.97, is the closest to 1.45.

Excerpts from Sydner Corporation's Most Recent Balance Sheet Appear Below