A company has $40,000 in cash, $75,000 in short-term investments, $263,000 in net current receivables, and $110,000 in inventory. The total current liabilities of the firm are $305,000. The quick ratio of the company is:

Question

Quizplus · Accepted Answer

The quick ratio (also known as acid-test ratio) is calculated by adding the cash, short-term investments, and net current receivables, and then dividing by the total current liabilities. 
Quick ratio = (Cash + Short-term investments + Net current receivables) / Total current liabilities
= ($40,000 + $75,000 + $263,000) / $305,000
= $378,000 / $305,000
= 1.24
Therefore, the quick ratio of the company is 1.24. The best choice is B.

A Company Has $40,000 in Cash, $75,000 in Short-Term Investments