Calculating the Current Ratio and the Quick (or Acid-Test) Ratio LoLo Lemon Company has current assets...
Calculating the Current Ratio and the Quick (or Acid-Test) Ratio LoLo Lemon Company has current assets equal to $500,000. Of these, $300,000 is cash, $75,000 is accounts receivable, $125,000 is inventory, and the remainder is marketable securities. Current liabilities total $425,000. Required: Note: Round answers to two decimal places.
1. Calculate the current ratio.
2. Calculate the quick ratio (acid-test ratio).
Homework Answers
1.
Current ratio = Current assets/Current liabilities
= 500,000/425,000
= 1.18
2.
Acid test ratio = (Cash + Accounts receivable + marketable securities)/Current liabilities
= (300,000 + 75,000 + 0)/425,000
= 375,000/425,000
= 0.88
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