Question

The Hummel Corporation reported the following income statement and balance sheet amounts and additional information for the end of the current year.

	End of current year	End of prior year
Net sales revenue (all credit)	$800,000
Cost of goods sold	$504,000
Gross profit	$296,000
Selling/general expenses	$184,000
Interest expense	$ 32,000
Net income	$ 80,000
Current assets	$ 71,000	$20,000
Long-term assets	$329,000	$280,000
Total assets	$400,000	$300,000
Current liabilities	$ 56,000	$16,000
Long-term liabilities	$ 84,000	$164,000
Common stockholders' equity	$260,000	$120,000
Total liabilities and stockholders' equity	$400,000	$300,000

Inventory and prepaid expenses account for $28,000 of the current year's current assets.
Average inventory for the current year is $12,000.
Average net accounts receivable for the current year is $32,000.
There are 40,000 shares of common stock outstanding.
Total dividends paid during the current year were $60,000.
The market price per share of common stock is $25.

What is the company's acid-test ratio for the current year?

Group of answer choices

5.38

0.35

0.77

1.27

Answer 1

Acid test ratio = Quick assets/current liabilities

= (71,000-28,000)/56,000

= 43,000/56,000

= 0.77

Option C is the answer