A Company Reported the Following Year-End Information Required:
A

A company reported the following year-end information:
$\begin{array}{|l|r|}\hline \text { Cash } & \$ 52,000 \\\hline \text { Short-term investments } & 12,000 \\\hline \text { Accounts receivable } & 54,000 \\\hline \text { Inventory } & 325,000 \\\hline \text { Prepaid expenses } & 17,500 \\\hline \text { Accounts payable } & 106,500 \\\hline \text { Other current payables } & 25,000 \\\hline\end{array}$ Required:
a. Explain the purpose of the acid-test ratio.
b. Calculate the acid-test ratio for this company.
c. What does the acid-test ratio reveal about this company?