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Financial Accounting

15th Edition
Carl Warren + 2 others
Publisher: Cengage Learning
ISBN: 9781337272124

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BuyFindarrow_forward

Financial Accounting

15th Edition
Carl Warren + 2 others
Publisher: Cengage Learning
ISBN: 9781337272124
Chapter 11, Problem 23E
Textbook Problem
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Quick ratio

Gmeiner Co. had the following current assets and liabilities on December 31 of two recent years:

Chapter 11, Problem 23E, Quick ratio Gmeiner Co. had the following current assets and liabilities on December 31 of two , example  1

  1. a. Determine the quick ratio for December 31 of both years.
  2. b. Chapter 11, Problem 23E, Quick ratio Gmeiner Co. had the following current assets and liabilities on December 31 of two , example  2 Interpret the change in the quick ratio between the two balance sheet dates.

a.

To determine

Compute Quick ratio for December 31, current year and for December 31, previous year.

Explanation of Solution

Quick ratio: Quick ratio, also called as acid-test ratio, denotes that this ratio is a more rigorous test of solvency than the current ratio. It is determined by dividing quick assets and current liabilities. The acceptable quick ratio is 0.90 to 1.00. Use the following formula to determine the quick ratio:

Quick Ratio=Quick assetsCurrentliabilities

Quick Assets: Quick assets are those assets that are most liquid. The examples of quick assets include cash and bank balances, temporary investments, and accounts receivable.

Current liabilities: Current liability is a kind of liability or the obligation of the business towards the creditors, in which the business is required to pay the creditors, within a period of one year or one operating cycle of the business, whichever is longer. The examples of current liabilities include Accounts payable, Salaries and Wages payable, Interest payable, Income Tax payable.

Compute Quick ratio for December 31, current year, if Cash is given as $486,000, accounts receivable is given as $210,000, and current liabilities is given as $580,000

b.

To determine

Interpret company’s quick ratio.

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Chapter 11 Solutions

Financial Accounting
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