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

Question

Business

Alvin Garcia

22 July, 17:05

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

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Answers (1)

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Preston Benson · Answer 1

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