A corporation reports the following year-end balance sheet data. The company's acid-test ratio equals:Cash $ 41,000 Current liabilities $ 76,000 Accounts receivable 56,000 Long-term liabilities 31,000 Inventory 61,000 Common stock 101,000 Equipment 146,000 Retained earnings 96,000 Total assets $ 304,000 Total liabilities and equity $ 304,000 a. 0.54b. 1.28c. 2.08d. 0.35e. 0.65

The company's acid-test ratio equals: b. 1.28 .

Explanation:

Acid Test Ratio is a liquidity ratio that shows how efficient the resources have been utilized. It is also known as the Quick Ratio.

Acid Test Ratio = ( Current Assets - Inventory ) / Current Liabilities

Current Assets Calculation :

Cash                                    $41,000

Accounts receivable         $56,000

Inventory                             $61,000

Total Current Assets        $158,000

Current Liabilities Calculation :

Current liabilities               $76,000

Total Current Liabilities     $76,000

Acid Test Ratio = ($158,000 -  $61,000) / $76,000

                         =  1.2763 or 1.28

Conclusion :

The company's acid-test ratio equals: b. 1.28 .

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