Asked by Garrett Wynne on Jun 10, 2024
Verified
Excerpts from Sydner Corporation's most recent balance sheet appear below: Sales on account in Year 2 amounted to $1,415 and the cost of goods sold was $915.The acid-test (quick) ratio at the end of Year 2 is closest to:
A) 1.67
B) 1.00
C) 0.97
D) 1.26
Acid-Test Ratio
A financial metric that measures the ability of a company to pay its short-term obligations with its most liquid assets.
Balance Sheet
A financial statement that provides a snapshot of a company's financial condition at a specific moment in time, showing assets, liabilities, and owners' equity.
Sales On Account
Transactions where goods are sold and payment is received at a later date, creating accounts receivable.
- Comprehend the calculation and importance of the acid-test (quick) ratio.
Verified Answer
We are not given the values for cash, short-term investments, and accounts receivable (net), but we can calculate accounts receivable as follows:
Accounts receivable = Sales on account - Cash received from those sales during Year 2
Accounts receivable = $1,415 - $500 (as per the change in accounts receivable on the balance sheet)
Accounts receivable = $915
Using this information, we can calculate the acid-test ratio:
Acid-test ratio = (Cash + Accounts receivable + Short-term investments) / Current liabilities
Acid-test ratio = ($1,500 + $915 + $0) / $1,815
Acid-test ratio = 1.6667 (rounded to 2 decimal places)
Therefore, the closest answer is A) 1.67.
Learning Objectives
- Comprehend the calculation and importance of the acid-test (quick) ratio.
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