In the current economic climate,banks are remaining very conservative in their lending practices.Peak Performance Sporting Goods is seeking a loan for expansion.As a loan officer for the local bank,you calculate the acid-test ratio for Peak Performance Sporting Goods.Using the information below,you determine Peak Performance's acid-test ratio = ____.

Question

Quizplus · Accepted Answer

The acid-test ratio (also known as the quick ratio) measures a company's ability to pay its short-term obligations with its most liquid assets. It excludes inventory from the calculation as inventory may not be easily convertible to cash.

The formula for acid-test ratio is:

(Current Assets - Inventory) / Current Liabilities

Using the information given, we can calculate Peak Performance Sporting Goods' acid-test ratio as follows:

($65,000 + $12,000 + $8,000 - $45,000) / $40,000 = $40,000 / $40,000 = 1.0

Therefore, the best choice is A) 1.0 as it represents Peak Performance's acid-test ratio.

In the Current Economic Climate,banks Are Remaining Very Conservative in Their