Table of contents

1. Introduction to Accounting1h 21m
2. Transaction Analysis1h 13m
3. Accrual Accounting Concepts2h 38m
4. Merchandising Operations2h 30m
5. Inventory1h 55m
6. Internal Controls and Reporting Cash1h 16m
7. Receivables and Investments3h 8m
8. Long Lived Assets5h 1m
9. Current Liabilities2h 19m
10. Time Value of Money1h 23m
- Time Value of Money Equations
  35m
- Using Time Value of Money Tables
  47m
11. Long Term Liabilities2h 45m
12. Stockholders' Equity2h 15m
13. Statement of Cash Flows2h 24m
14. Financial Statement Analysis5h 25m
15. GAAP vs IFRS56m

14. Financial Statement Analysis

Ratios: Quick (Acid Test) Ratio

Financial Accounting

14. Financial Statement Analysis

Ratios: Quick (Acid Test) Ratio

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Multiple Choice

Given the following information for XYZ Company, calculate the acid-test (quick) ratio:- Cash: $15,000- Accounts Receivable: $10,000- Inventory: $20,000- Prepaid Expenses: $5,000- Current Liabilities: $20,000What is the acid-test ratio?A) 1.25B) 0.75C) 2.50D) 0.50

A) 1.25

D) 0.50

B) 0.75

C) 2.50

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Verified step by step guidance

Step 1: Understand the acid-test (quick) ratio formula. The formula is: Acid-Test Ratio = (Cash + Accounts Receivable) / Current Liabilities. This ratio measures a company's ability to pay its current liabilities using its most liquid assets, excluding inventory and prepaid expenses.

Step 2: Identify the liquid assets from the given information. Liquid assets include Cash ($15,000) and Accounts Receivable ($10,000). Inventory and Prepaid Expenses are excluded because they are not considered liquid assets.

Step 3: Add the liquid assets together. Using the formula, sum up Cash and Accounts Receivable: $15,000 + $10,000.

Step 4: Identify the Current Liabilities from the given information. Current Liabilities are provided as $20,000.

Step 5: Divide the total liquid assets by the Current Liabilities to calculate the acid-test ratio. Use the formula: Acid-Test Ratio = (Cash + Accounts Receivable) / Current Liabilities = ($15,000 + $10,000) / $20,000.