Data from Dunshee Corporation's most recent balance sheet appear below: Sales on account in Year 2 amounted to $1,170 and the cost of goods sold was $730.The acid-test (quick) ratio at the end of Year 2 is closest to:
A) 2.17
B) 1.78
C) 1.74
D) 1.06

Question

Data from Dunshee Corporation's most recent balance sheet appear below:  Sales on account in Year 2 amounted to $1,170 and the cost of goods sold was $730.The acid-test (quick) ratio at the end of Year 2 is closest to:
A) 2.17 
B) 1.78 
C) 1.74 
D) 1.06

Quizplus · Accepted Answer

The formula for the acid-test (quick) ratio is:

( Current assets - Inventory - Prepaid expenses ) / Current liabilities

Based on the information provided, the current assets and current liabilities from the balance sheet are:

Current Assets:
Cash and marketable securities = $450
Accounts receivable = $280
Inventory = $290
Prepaid expenses = $50
Total current assets = $1,070

Current Liabilities:
Accounts payable = $200
Accrued expenses = $300
Total current liabilities = $500

Using the formula for the acid-test (quick) ratio, we can calculate it as:

( 1,070 - 290 - 50 ) / 500 = 1.74

Therefore, the acid-test (quick) ratio at the end of Year 2 is closest to 1.74, which is answer choice C.

Data from Dunshee Corporation's Most Recent Balance Sheet Appear Below