In the current economic climate,banks are remaining very conservative in their lending practices.Peak Performance Sporting Goods is seeking a loan for expansion.As a loan officer for the local bank,you calculate the acid-test ratio for Peak Performance Sporting Goods.Using the information below,you determine Peak Performance's acid-test ratio = _____.
A)1.0
B)1.5
C)2.5
D)3.0

Question

In the current economic climate,banks are remaining very conservative in their lending practices.Peak Performance Sporting Goods is seeking a loan for expansion.As a loan officer for the local bank,you calculate the acid-test ratio for Peak Performance Sporting Goods.Using the information below,you determine Peak Performance's acid-test ratio = _____. 
A)1.0 
B)1.5 
C)2.5 
D)3.0

Quizplus · Accepted Answer

The acid-test ratio, also known as the quick ratio, is a measure of a company's ability to pay its current liabilities using its most liquid assets.

The formula for the acid-test ratio is:

(Available Cash + Marketable Securities + Accounts Receivable) / Current Liabilities

Using the information given in the question, we can calculate Peak Performance's acid-test ratio as:

(90,000 + 50,000 + 110,000) / 250,000 = 1.0

An acid-test ratio of 1.0 means that Peak Performance has just enough liquid assets to cover its current liabilities. This may not be viewed favorably by lenders, who typically prefer to see a ratio of at least 1.5 or higher. However, given the current conservative lending practices of banks, even a ratio of 1.0 may be challenging for Peak Performance to obtain a loan.

In the Current Economic Climate,banks Are Remaining Very Conservative in Their