A firm's long-term assets = $100,000, total assets = $400,000, inventory = $50,000 and current liabilities = $200,000. What are the firm's current ratio and quick ratio?
A) Current ratio = 0.5; quick ratio = 1.25
B) Current ratio = 1.0; quick ratio = 2.0
C) Current ratio = 1.5; quick ratio = 1.25
D) Current ratio = 2.5; quick ratio = 2.0

Question

Quizplus · Accepted Answer

The current ratio is calculated as current assets divided by current liabilities. Current assets = total assets - long-term assets = $400,000 - $100,000 = $300,000. So, the current ratio = $300,000 / $200,000 = 1.5. The quick ratio is calculated as (current assets - inventory) divided by current liabilities = ($300,000 - $50,000) / $200,000 = $250,000 / $200,000 = 1.25.

A Firm's Long-Term Assets = $100,000, Total Assets = $400,000