If a firm's current ratio is 1.5, then ____.
A) its current liabilities exceed its current assets
B) it is possible for its quick ratio to be 2.0
C) it is possible for its quick ratio to be 1.0
D) its current assets equal its current liabilities

Question

Quizplus · Accepted Answer

The current ratio is calculated as current assets divided by current liabilities. A current ratio of 1.5 indicates that the firm's current assets are 1.5 times its current liabilities, not equal to or less than them. The quick ratio, which excludes inventory from current assets, can be lower than the current ratio if inventory is a significant portion of current assets, making it possible for the quick ratio to be 1.0 even if the current ratio is 1.5.

If a Firm's Current Ratio Is 1