WPM,Inc.has current assets of $8,000,000,current liabilities of $4,000,000,inventory of $1,320,000,and sales of $12,000,000.What is the acid test ratio?
A) 2.0
B) 1.67
C) 0.22
D) 0.1

Question

Quizplus · Accepted Answer

The acid test ratio, also known as the quick ratio, measures a company's ability to pay off its current liabilities with its most liquid assets. It excludes inventory, as inventory may take time to sell and convert into cash.

The formula for the acid test ratio is:

(Assets - Inventory) / Current Liabilities

Plugging in the values given:

($8,000,000 - $1,320,000) / $4,000,000 = 1.67

Therefore, the acid test ratio for WPM, Inc. is 1.67.

Option B is the best choice as it is the correct answer based on the given information and calculation.

WPM,IncHas Current Assets of $8,000,000,current Liabilities of $4,000,000,inventory of $1,320,000,and