Data from Sawin Corporation's most recent balance sheet appear below:
The company's acid-test ratio is closest to:
A) 0.12
B) 0.39
C) 0.70
D) 0.87

Question

Data from Sawin Corporation's most recent balance sheet appear below: 
The company's acid-test ratio is closest to:
A) 0.12 
B) 0.39 
C) 0.70 
D) 0.87

Quizplus · Accepted Answer

The acid-test ratio is calculated by dividing current assets minus inventories by current liabilities. 
Acid-Test Ratio = (Current Assets - Inventories) / Current Liabilities 
In this case, the current assets are $775,000 minus the inventories of $50,000, which equals $725,000. The current liabilities are $1,040,000. 
Thus, the acid-test ratio = 725,000 / 1,040,000 = 0.698 or 0.70, which is closest to choice C.

Data from Sawin Corporation's Most Recent Balance Sheet Appear Below