Kingsbury Associates has current assets as follows: Cash $3,000
Accounts receivable $4,500
Inventories $8,000
If Kingsbury has a current ratio of 3.2, what is its quick ratio?
A) 2.07
B) 1.55
C) 0.48
D) 0.96

Question

Quizplus · Accepted Answer

The quick ratio is calculated by subtracting inventories from current assets and then dividing by current liabilities. In this case, Kingsbury's quick assets (cash and accounts receivable) are $7,500 ($3,000 + $4,500) and their current liabilities are unknown. However, we know that their current ratio (current assets divided by current liabilities) is 3.2. Therefore, we can set up the following equation:

3.2 = (3000 + 4500 + 8000) / Current Liabilities

Solving for current liabilities, we get:

Current Liabilities = $5,625

Now we can calculate the quick ratio:

Quick Ratio = (Cash + Accounts Receivable) / Current Liabilities

Quick Ratio = ($3,000 + $4,500) / $5,625

Quick Ratio = 1.55

Kingsbury Associates Has Current Assets as Follows: Cash $3,000