A company has cash, $80,000; temporary investments, $20,000; net receivables, $60,000; and inventory, $450,000. Current liabilities are $200,000. The quick or acid-test ratio is

Question

Quizplus · Accepted Answer

The quick or acid-test ratio is calculated by adding cash, temporary investments, and net receivables, and then dividing by current liabilities. This gives a quick snapshot of the company's ability to pay off its liabilities in the short term without relying on inventory sales.

So, the calculation is: 
($80,000 + $20,000 + $60,000) / $200,000 = 0.8

Therefore, the quick or acid-test ratio is 0.80 to 1.

A Company Has Cash, $80,000; Temporary Investments, $20,000; Net Receivables