Asked by Eunice Monpremier on Jul 04, 2024
Verified
Data from Dunshee Corporation's most recent balance sheet appear below: 
Sales on account in Year 2 amounted to $1,170 and the cost of goods sold was $730.The acid-test (quick) ratio at the end of Year 2 is closest to:
A) 2.17
B) 1.78
C) 1.74
D) 1.06
Acid-Test Ratio
is a financial metric that assesses a company's ability to pay off its current liabilities with its most liquid assets, excluding inventory.
Balance Sheet
An accounting document summarizing assets, liabilities, and owners' equity of a business on a specific date.
Sales On Account
Transactions where goods are sold and payment is deferred, allowing the buyer to pay at a later date, typically generating accounts receivable for the seller.
- Apprehend the methodology and relevance of the acid-test (quick) ratio.
Verified Answer
( Current assets - Inventory - Prepaid expenses ) / Current liabilities
Based on the information provided, the current assets and current liabilities from the balance sheet are:
Current Assets:
Cash and marketable securities = $450
Accounts receivable = $280
Inventory = $290
Prepaid expenses = $50
Total current assets = $1,070
Current Liabilities:
Accounts payable = $200
Accrued expenses = $300
Total current liabilities = $500
Using the formula for the acid-test (quick) ratio, we can calculate it as:
( 1,070 - 290 - 50 ) / 500 = 1.74
Therefore, the acid-test (quick) ratio at the end of Year 2 is closest to 1.74, which is answer choice C.
Learning Objectives
- Apprehend the methodology and relevance of the acid-test (quick) ratio.
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