Question

Using the following year-end information for Calvin’s Clothing, calculate the current ratio and acid-test ratio for the business: Cash $ 57,660 Short-term investments 13,500 Accounts receivable 57,000 Inventory 260,000 Prepaid expenses 8,850 Accounts payable 107,500 Other current payables 31,800

Answer 1

Answer:

Current ratio = 2.85

Acid ratio = 0.92

Explanation:

The current ratio of Calvin’s Clothing is calculated as below:

Current ratio = Current asset/Current liabilities

                       = (57,660 + 13,500 + 57,000 + 260,000 + 8,850)/(107,500 + 31,800)

                       = 2.85

The acid ratio of Calvin’s Clothing is calculated as below:

Acid ratio = (Cash + Shorterm investment + Account receivable)/Current liabilities

                      = (57,660 + 13,500 + 57,000)/(107,500 + 31,800)

                      = 0.92