Question

Use the information below for Privett Company to answer the question that follow. Privett Company Accounts payable $ 30,000 Accounts receivable 35,000 Accrued liabilities 7,000 Cash 25,000 Intangible assets 40,000 Inventory 72,000 Long-term investments 100,000 Long-term liabilities 75,000 Marketable securities 36,000 Notes payable (short-term) 20,000 Property, plant, and equipment 400,000 Prepaid expenses 2,000 Based on the data for Privett Company, what is the quick ratio, rounded to one decimal point

Answer 1

Answer:

The quick ratio of the company is 1.6

Explanation:

The formula for computing the Quick ratio using the formula as:

Quick ratio = (Cash + Marketable Securities + Accounts Receivable) / Current Liabilities

where

Cash is $25,000

Marketable securities is $36,000

Accounts Receivable is $35,000

Current liabilities involve:

Current liabilities = Accounts Payable + Accrued liabilities + Notes Payable

Current liabilities = $30,000 + $7,000 + $20,000

Current liabilities = $57,000

Putting the values above:

Quick ratio = $25,000 + $36,000 + $35,000  / $57,000

Quick ratio = $96,000 / $57,000

Quick ratio = 1.6

Note: Prepaid expense is not considered in quick ratio as usually the inventories take time to convert into cash and the prepaid could not be used to pay the current liabilities.