point(s) possible
A balance sheet shows Total Current Assets of (Cash of , Notes Receivable of , Accounts
Receivable of , and Inventory of ), Total Plant Assets of (Land of , Buildings of ,
and Fixtures of ) and Current Liabilities of . Determine the Current Ratio, the Acid-test Ratio, and
evaluate the health of the company.
The Current Ratio for the company is to 1 .
(Round to the nearest hundredth.)
The Acid-test Ratio is to 1 .
(Round to the nearest hundredth.)
What do the ratios suggest about the company?
B. Both ratios indicate a healthy company.
C. Both ratios suggest the company may have difficulties.

Ask by Barnett Ortega. in the United States

Mar 27,2025

Question

point(s) possible
A balance sheet shows Total Current Assets of (Cash of , Notes Receivable of , Accounts
Receivable of , and Inventory of ), Total Plant Assets of (Land of , Buildings of ,
and Fixtures of ) and Current Liabilities of . Determine the Current Ratio, the Acid-test Ratio, and
evaluate the health of the company.
The Current Ratio for the company is to 1 .
(Round to the nearest hundredth.)
The Acid-test Ratio is to 1 .
(Round to the nearest hundredth.)
What do the ratios suggest about the company?
B. Both ratios indicate a healthy company.
C. Both ratios suggest the company may have difficulties.

Ask by Barnett Ortega. in the United States

Mar 27,2025

UpStudy AI · Accepted Answer

**Step 1. Calculate the Current Ratio**

The formula for the Current Ratio is:
$$
\text{Current Ratio} = \frac{\text{Total Current Assets}}{\text{Current Liabilities}}
$$
Given:
- Total Current Assets $$= \$285{,}000$$
- Current Liabilities $$= \$150{,}000$$

Substitute the given values:
$$
\text{Current Ratio} = \frac{285{,}000}{150{,}000} = 1.90
$$

**Step 2. Calculate the Acid-test Ratio**

The Acid-test Ratio excludes inventory from current assets. Its formula is:
$$
\text{Acid-test Ratio} = \frac{\text{Total Current Assets} - \text{Inventory}}{\text{Current Liabilities}}
$$
Given:
- Total Current Assets $$= \$285{,}000$$
- Inventory $$= \$82{,}500$$
- Current Liabilities $$= \$150{,}000$$

Subtract inventory from total current assets:
$$
285{,}000 - 82{,}500 = 202{,}500
$$
Now compute the ratio:
$$
\text{Acid-test Ratio} = \frac{202{,}500}{150{,}000} = 1.35
$$

**Step 3. Evaluate the Health of the Company**

- The Current Ratio of $$1.90$$ indicates that for every dollar of current liabilities, the company has $$ \$1.90 $$ in current assets. This is close to the ideal balance seen in many industries.
- The Acid-test Ratio of $$1.35$$ shows that excluding inventory, the company still has $$ \$1.35 $$ of liquid assets for each dollar of current liabilities.

Both ratios being greater than $$1$$ indicate that the company can cover its short-term obligations. Consequently, the ratios suggest:

**B. Both ratios indicate a healthy company.**
**Current Ratio:** 1.90 to 1 **Acid-test Ratio:** 1.35 to 1 **Evaluation:** Both ratios indicate a healthy company.

Upstudy AI Solution

Answer

Solution

Beyond the Answer

Related Questions

Latest Economics Questions