Eradicate Company has $16,000 in cash, $8,000 in marketable securities, $29,000 in account receivable, $30,000 in inventories, and $34,000 in current liabilities. The company's current assets consist of cash, marketable securities, accounts receivable, and inventory. The company's acid-test ratio is closest to:
A) 0.85
B) 2.44
C) 1.56
D) 1.32

Question

Quizplus · Accepted Answer

The acid-test ratio, also known as the quick ratio, is calculated as follows:

Acid-Test Ratio = (Cash + Marketable Securities + Accounts Receivable) / Current Liabilities

In this case, the company's current assets consist of $16,000 + $8,000 + $29,000 = $53,000. Their acid-test ratio is therefore:

Acid-Test Ratio = ($53,000) / ($34,000) = 1.56

Therefore, the closest answer choice is C) 1.56.

Eradicate Company Has $16,000 in Cash, $8,000 in Marketable Securities