Airline Accessories has the following current assets: cash, $96 million; receivables, $88 million; inventory, $176 million; and other current assets, $12 million. Airline Accessories has the following liabilities: accounts payable, $86 million; current portion of long-term debt, $29 million; and long-term debt, $17 million. Based on these amounts, calculate the current ratio and the acid-test ratio for Airline Accessories. (Enter your answers in millions, not in dollars. For example, $5,500,000 should be entered as 5.5.)

Question

Business

Marcelo Parker

13 October, 12:09

Airline Accessories has the following current assets: cash, $96 million; receivables, $88 million; inventory, $176 million; and other current assets, $12 million. Airline Accessories has the following liabilities: accounts payable, $86 million; current portion of long-term debt, $29 million; and long-term debt, $17 million. Based on these amounts, calculate the current ratio and the acid-test ratio for Airline Accessories. (Enter your answers in millions, not in dollars. For example, $5,500,000 should be entered as 5.5.)

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Helen Buckley · Answer 1

current ratio = 3. 80 times

Acid-test ratio = 2 times

Explanation:

The current ratio is the sum of sum of current assets divided by current liabilities. It is used ti measures the the ability of Airline Accessories to meet its short - term obligation falling due within a year

Current ratio = 96 + 88 + 12 / (86 + 29)

= 3. 80 : 1

Acid test ratio also measures liquidity but with adjustment for risky current assets i. e inventory.

Acid test ratio = current asset - inventory / Current liabilities

= (96 + 88 + 12) / (86+29)

=2 : 1