At December 31, 20X2, Curry Co. had the following balances in selected asset accounts: Curry also had current liabilities of $1,000 at December 31, 20X2, and net credit sales of $7,200 for the year then ended. What is Curry's acid-test ratio at December 31, 20X2?

Question

At December 31, 20X2, Curry Co. had the following balances in selected asset accounts:  Curry also had current liabilities of $1,000 at December 31, 20X2, and net credit sales of $7,200 for the year then ended. What is Curry's acid-test ratio at December 31, 20X2?

Quizplus · Accepted Answer

Choice "A" is correct. The acid-test ratio is calculated by taking the current assets excluding inventory and prepaid expenses and dividing by current liabilities. In this case, cash and accounts receivable ($300 + $1,200 = $1,500) are divided by current liabilities ($1,000), resulting in a ratio of $1,500/$1,000, or 1.5. Choice "B" is incorrect. The numerator in the acid-test ratio formula includes only cash and accounts receivable. It would not include prepaid expenses. Choice "C" is incorrect. The numerator in the acid-test ratio formula includes only cash and accounts receivable. It would not include inventory. Choice "D" is incorrect. The numerator in the acid-test ratio formula includes only cash and accounts receivable. It would not include inventory and prepaid expenses.