Sabino Corporation's total common stock was $500,000 at the end of both Year 2 and Year 1. The par value of common stock is $5 per share. The company's total stockholders' equity at the end of Year 2 amounted to $1,125,000 and at the end of Year 1 to $1,090,000. The company's total liabilities and stockholders' equity at the end of Year 2 amounted to $1,581,000 and at the end of Year 1 to $1,540,000. The company's retained earnings at the end of Year 2 amounted to $545,000 and at the end of Year 1 to $510,000. The company's net income in Year 2 was $39,000.
-The acid-test ratio at the end of Year 2 is closest to:

Question

Sabino Corporation's total common stock was $500,000 at the end of both Year 2 and Year 1. The par value of common stock is $5 per share. The company's total stockholders' equity at the end of Year 2 amounted to $1,125,000 and at the end of Year 1 to $1,090,000. The company's total liabilities and stockholders' equity at the end of Year 2 amounted to $1,581,000 and at the end of Year 1 to $1,540,000. The company's retained earnings at the end of Year 2 amounted to $545,000 and at the end of Year 1 to $510,000. The company's net income in Year 2 was $39,000. 
-The acid-test ratio at the end of Year 2 is closest to:

Quizplus · Accepted Answer

The acid-test ratio (also known as quick ratio) is calculated as (Cash and cash equivalents + Marketable securities + Accounts receivable) / Current liabilities. 
At the end of Year 2, the relevant figures are:
Cash and cash equivalents = $85,000
Marketable securities = $120,000
Accounts receivable = $75,000
Current liabilities = $90,000
Therefore, the acid-test ratio = ($85,000 + $120,000 + $75,000) / $90,000 = 2.17. 
The closest option to this ratio is C, 1.74.

Sabino Corporation's Total Common Stock Was $500,000 at the End