Answer:
Current ratio is 2.50:1.
Quick ratio is 1.85:1
Explanation:
From the question, the following can first be calculated:
Current asset = Cash + Marketable securities + Account receivable + Inventory
= $225,000 + $115,000 + $112,000 + $158,000
Current asset = $610,000
Quick asset = Current asset – Inventory
= $610,000 - $158,000
Quick asset = $452,000
Current liability = Account payable = $244,000
(a) the current ratio
Current ratio = Current assets/current liability = $610,000/$244,000 = 2.50
Therefore, the current ratio is 2.50:1., and the company has more than enough current asset to meet its short term debt obligation.
(b) the quick ratio
Quick ratio = Quick assets/current liability = $452,000/$244,000 = 1.85
Therefore, the quick ratio is 1.85:1, and the company can quickly convert more than enough asset to cash to meet short and immediate debt obligations.
A. Current ratio as per company's balance sheet will be 2.5:1
B. Quick ratio as per company's balance sheet will be 1.8:1
We've arrived at the following ratios by putting the values in the following formulae
A.
[tex]\text{current ratio} = \dfrac{\text{current assets}} {\text{ current liabilities}}\\ \\ = \dfrac{225000+115000+112000+158000} { 244000}\\ = \dfrac{610000} { 244000}\\\\ = 2.50[/tex]
It can be observed that company has enough cash to meet its short term liabilities and requirements .
B. quick ratio = current assests - inventory / current liabilities
= 610000-158000 / 244000
=452000 / 244000
= 1.8 (squared off to nearest decimal)
It can be observed that company is cash rich and can handle any short term cash requirements .
Hence the quick ratios and current ratios are calculated as 1.85:1 and 2.5:1 respectively and company is cash rich and debt free in current scenario.
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