Discount Travel has the following current assets: cash,$102 million;receivables,$94 million;inventory,$182 million;and other current assets,$18 million.Discount Travel also has the following liabilities: accounts payable,$98 million;current portion of long-term debt,$35 million;and long-term debt,$23 million.Based on these amounts,what is the acid-test ratio?

Question

Quizplus · Accepted Answer

To calculate the acid-test ratio, we need to subtract inventory and other current assets from current assets since these are not considered to be as easily convertible to cash as the other current assets. 
Acid-test ratio = (cash + receivables) / (accounts payable + current portion of long-term debt)
= (102 + 94) / (98 + 35)
= 196 / 133
= 1.47
So, the acid-test ratio is 1.47. The best choice is A.

Discount Travel Has the Following Current Assets: Cash,$102 Million;receivables,$94 Million;inventory,$182