Current assets for Distributions Inc.are $260,000 and total assets are $600,000.Current liabilities are $170,000 and total liabilities are $300,000.Included in the current assets are merchandise inventory and prepaid expenses of $25,000 and $15,000,respectively.What is the acid-test ratio?

Question

Quizplus · Accepted Answer

The acid-test ratio is calculated by subtracting inventory and prepaid expenses from current assets and dividing by current liabilities.

Acid-test ratio = (Current assets - Inventory - Prepaid expenses) / Current liabilities
Acid-test ratio = ($260,000 - $25,000 - $15,000) / $170,000
Acid-test ratio = $220,000 / $170,000
Acid-test ratio = 1.29

Therefore, the best choice is D) 1.29 as it is the correct acid-test ratio for Distributions Inc. The other choices are incorrect calculations of the acid-test ratio.

Current Assets for Distributions Inc