Homework Answers
The current ratio and quick ratio are Liquidity ratios of the company and it measures Company’s ability to generate cash to meet the short-term financial commitments.
Current ratio = Current assets / Current liabilities
Where,
Current assets = Firm’s total asset – firm’s long term asset
= $200,000 - $75,000 = $125,000
And current liabilities = $50,000
Therefore,
Current ratio = $125,000/$50,000 = 2.5
Quick ratio (acid-test ratio) = (Current assets – Inventory)/Current liabilities
Where,
Current assets = $125,000
Inventory = $25,000
Current liabilities = $50,000
Therefore,
Quick ratio = ($125,000 - $25,000)/$50,000
= $100,000/$50,000 = 2.0
Current ratio is 2.5 and quick ratio is 2.0
Therefore correct answer is option D. Current ratio = 2.5; quick ratio = 2.0
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Calculate the current ratio, quick ratio, long-term debt/total
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picture below.
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