Question

Selected financial data regarding current assets and current liabilities for Queen's Line, a competitor in the cruise line industry, is provided 96 (5 in millions) Current assets: Cash and cash equivalents $ 403 Current investments 82 Net receivables 271 Inventory Other current assets 125 Total current assets $ 977 Current liabilities: Accounts payable $1,061 Short-term debt 644 Other current liabilities 969 Total current liabilities $2,674 Required: 1. Calculate the current ratio and the acid test ratio for Queen's Line (Enter your answers in millions, not in dollars. For example, $5,500,000 should be entered as 5.5.) Current Ratio

Answer 1

Current Assets Current Liabilities Current Ratio 977 2674 0.37 To calculate current ratio total current assets are divided by total current liabilities. Current Assets - Inventory Current Liabilities Acid Test Ratio 881 2674 0.33 To calculate acid test ratio only current assets which can turn to cash easily are considered. Here cash & cash equivalent, current investment, net receivables and other current assets can be converted to cash easily. only inventory takes time as it has to be converted to finished goods and than it can be sold. so we deducted inventory from current assets and than divided it with current liabilities to get acid test ratio.