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Survey of Accounting (Accounting I)

8th Edition
Carl Warren
ISBN: 9781305961883

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BuyFindarrow_forward

Survey of Accounting (Accounting I)

8th Edition
Carl Warren
ISBN: 9781305961883
Textbook Problem

Twenty metrics of liquidity, solvency, and profitability

The comparative financial statements of Automotive Solutions Inc. are as follows. The market price of Automotive Solutions Inc. common stock was $119.70 on December 31, 20Y8


Instructions

Quick ratio

To determine

Concept Introduction:

Acid test ratio:

Acid test ratio is also called Quick ratio. This ratio is calculated by dividing the quick assets (Cash, Cash equivalents, Short term investments and current receivables) by total current liabilities for the year. The formula for Acid test ratio is as follows:

  Acid test ratio = (Cash + Cash equivalents + Short term investments + Accounts receivables) Current Liabilities

To Calculate:

The Quick Ratio.

Explanation

The Quick Ratio is calculated as follows:

    20Y8 20Y7
    Total Current Assets $ 3,690,000 $ 3,089,000
    Less: Inventories $ (1,190,000) $ (950,000)

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