**Financial Statement Analysis: Understanding Quick Ratios**Welcome to our educational section on financial analysis. In this segment, we will analyze the financial data of Privett Company to calculate its quick ratio, an important measure of a company's short-term liquidity.### Financial Data for Privett CompanyHere is the list of Privett Company's financial variables:- **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### Quick Ratio CalculationThe **quick ratio** (also known as the acid-test ratio) is a measure of a company’s capacity to pay its current liabilities without needing to sell its inventory or obtain additional financing. It is calculated as follows:\[ \text{Quick Ratio} = \frac{\text{Quick Assets}}{\text{Current Liabilities}} \]Where quick assets are:- Cash- Marketable securities- Accounts receivable### Calculation Steps**Step 1: Summing Quick Assets:**- Cash: $25,000- Marketable securities: $36,000- Accounts receivable: $35,000 \[ \text{Quick Assets} = \$25,000 + \$36,000 + \$35,000 = \$96,000 \]**Step 2: Identifying Current Liabilities:**- Accounts payable: $30,000- Accrued liabilities: $7,000- Notes payable (short-term): $20,000 \[ \text{Current Liabilities} = \$30,000 + \$7,000 + \$20,000 = \$57,000 \]**Step 3: Calculating the Quick Ratio:**\[ \text{Quick Ratio} = \frac{96,000}{57,000} \approx 1.7 \]### Educational QuestionBased on the data for Privett Company, what is the quick ratio, rounded to

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Description: **Financial Statement Analysis: Understanding Quick Ratios**Welcome to our educational section on financial analysis. In this segment, we will analyze the financial data of Privett Company to calculate its quick ratio, an important measure of a comp

We know that the formula to calculate quick ratio is Quick ratio = ( Current Assets - Inventory-…

Answered: Based on the data for Privett Company,…

Business

Accounting

Based on the data for Privett Company, what is the quick ratio,

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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