acid-test ratio
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
Related questions
Question
![### Financial Analysis Table
The table provided shows a breakdown of current assets and liabilities for three companies: Camaro, GTO, and Torino. Below is the detailed analysis of each component:
#### Camaro
- **Cash**: $2,300
- **Short-term investments**: $0
- **Current receivables**: $240
- **Inventory**: $2,125
- **Prepaid expenses**: $300
- **Total current assets**: $4,965
- **Current liabilities**: $2,180
#### GTO
- **Cash**: $210
- **Short-term investments**: $0
- **Current receivables**: $490
- **Inventory**: $1,980
- **Prepaid expenses**: $600
- **Total current assets**: $3,280
- **Current liabilities**: $1,300
#### Torino
- **Cash**: $1,200
- **Short-term investments**: $500
- **Current receivables**: $400
- **Inventory**: $2,950
- **Prepaid expenses**: $900
- **Total current assets**: $5,950
- **Current liabilities**: $3,450
### Questions
**a. Compute the acid-test ratio for each of the following separate cases.**
The acid-test ratio, sometimes called the quick ratio, is calculated using the formula:
\[ \text{Acid-test ratio} = \frac{\text{Cash} + \text{Short-term investments} + \text{Current receivables}}{\text{Current liabilities}} \]
- **Camaro:**
\[ \frac{2,300 + 0 + 240}{2,180} = \frac{2,540}{2,180} \approx 1.17 \]
- **GTO:**
\[ \frac{210 + 0 + 490}{1,300} = \frac{700}{1,300} \approx 0.54 \]
- **Torino:**
\[ \frac{1,200 + 500 + 400}{3,450} = \frac{2,100}{3,450} \approx 0.61 \]
**b. Which company is in the best position to meet short-term obligations?**
Analyzing the](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2Fde73d8a3-703f-492e-8945-c6a65b8a92bf%2F7362698a-b87e-486a-8c3f-bc6328680790%2Fjh6midc_processed.png&w=3840&q=75)
Transcribed Image Text:### Financial Analysis Table
The table provided shows a breakdown of current assets and liabilities for three companies: Camaro, GTO, and Torino. Below is the detailed analysis of each component:
#### Camaro
- **Cash**: $2,300
- **Short-term investments**: $0
- **Current receivables**: $240
- **Inventory**: $2,125
- **Prepaid expenses**: $300
- **Total current assets**: $4,965
- **Current liabilities**: $2,180
#### GTO
- **Cash**: $210
- **Short-term investments**: $0
- **Current receivables**: $490
- **Inventory**: $1,980
- **Prepaid expenses**: $600
- **Total current assets**: $3,280
- **Current liabilities**: $1,300
#### Torino
- **Cash**: $1,200
- **Short-term investments**: $500
- **Current receivables**: $400
- **Inventory**: $2,950
- **Prepaid expenses**: $900
- **Total current assets**: $5,950
- **Current liabilities**: $3,450
### Questions
**a. Compute the acid-test ratio for each of the following separate cases.**
The acid-test ratio, sometimes called the quick ratio, is calculated using the formula:
\[ \text{Acid-test ratio} = \frac{\text{Cash} + \text{Short-term investments} + \text{Current receivables}}{\text{Current liabilities}} \]
- **Camaro:**
\[ \frac{2,300 + 0 + 240}{2,180} = \frac{2,540}{2,180} \approx 1.17 \]
- **GTO:**
\[ \frac{210 + 0 + 490}{1,300} = \frac{700}{1,300} \approx 0.54 \]
- **Torino:**
\[ \frac{1,200 + 500 + 400}{3,450} = \frac{2,100}{3,450} \approx 0.61 \]
**b. Which company is in the best position to meet short-term obligations?**
Analyzing the
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
This is a popular solution!
Trending now
This is a popular solution!
Step by step
Solved in 3 steps
Recommended textbooks for you
Accounting
Accounting
ISBN:
9781337272094
Author:
WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
Publisher:
Cengage Learning,
Accounting Information Systems
Accounting
ISBN:
9781337619202
Author:
Hall, James A.
Publisher:
Cengage Learning,
Accounting
Accounting
ISBN:
9781337272094
Author:
WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
Publisher:
Cengage Learning,
Accounting Information Systems
Accounting
ISBN:
9781337619202
Author:
Hall, James A.
Publisher:
Cengage Learning,
Horngren's Cost Accounting: A Managerial Emphasis…
Accounting
ISBN:
9780134475585
Author:
Srikant M. Datar, Madhav V. Rajan
Publisher:
PEARSON
Intermediate Accounting
Accounting
ISBN:
9781259722660
Author:
J. David Spiceland, Mark W. Nelson, Wayne M Thomas
Publisher:
McGraw-Hill Education
Financial and Managerial Accounting
Accounting
ISBN:
9781259726705
Author:
John J Wild, Ken W. Shaw, Barbara Chiappetta Fundamental Accounting Principles
Publisher:
McGraw-Hill Education