Using the following year-end information for Bauman, LLC, calculate the current ratio and acid-test ratio:
Cash $39,970
Short-term investments 9,200
Accounts receivable 40,500
Inventory 241,000
Prepaid expenses 16,830
Accounts payable 87,900
Other current payables 22,600

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ranijoshijj97 ranijoshijj97 · Answer 1 · 2019-11-28T20:03:17+01:00

Answer:

The Current ratio is 3.14 and Acid test ratio is 0.81

Explanation:

The formula of current ratio is:

Current Ratio = Current Assets / Current Liabilities

= (Cash + Short term investment + Accounts receivable + Inventory + Prepaid expenses) / (Accounts Payable + Other current payables)

= ($39,970 + $9,200 + $40,500 + $241,000 + $16,830) / ($87,900 + $ 22,600)

= $347,500 / $110,500

= 3.14

The formula of Acid-Test is:

Acid-Test Ratio = Quick Assets / Current Liabilities

= (Cash + Short term investment + Accounts receivable) / (Accounts Payable + Other current payables)

= ($39,970 + $9,200 + $40,500) / ($87,900 + $ 22,600)

= $89,670 / $110,500

= 0.81