Question

Using the following year-end information for Bauman, LLC, calculate the current ratio and acid-test ratio: Cash $54,960 Short-term investments 11,200 Accounts receivable 45,500 Inventory 234,000 Prepaid expenses 26,840 Accounts payable 94,900 Other current payables 25,600

Answer 1

Answer:

Current ratio=3.09

Acid test ratio=0.93

Explanation:

Current ratio of the Bauman LLC shall be determined through following mentioned formula:

Current ratio=Current assets/Current liabilities

In the given question

Current assets=Cash+Short-term investments+Accounts receivable+Inventory+Prepaid expenses

Current assets=$54,960+ $11,200+$45,500+$234,000+$26,840

                        =$372,500

Current liabilities=Accounts payable + Other current payables

                           =$94,900+$25,600

                           =$120,500

Current ratio=$372,500/$120,500=3.09

Acid test of the Bauman LLC shall be determined through following mentioned formula:

Acid test=Cash+Short-term investment+Accounts receivable/Current liabilities

In the given question

Cash+Short-term investments+Accounts receivable

=$54,960+ $11,200+$45,500

=$111,660

Current liabilities=Accounts payable + Other current payables

                           =$94,900+$25,600

                           =$120,500

Acid test ratio=$111,660/$120,500=0.93