Cornerstone Exercise 8-33 (Algorithmic)Liquidity RatiosXYZ's financial statements contain the following information:Cash$369,000Accounts receivable795,400Inventory975,800Marketable securities123,000Accounts payable631,000Accrued expenses189,000Long-term debt1,010,000Round answers to two decimal places.Required:1. What is its current ratio?2. What is its quick ratio? 3. What is its cash ratio?

Current ratio is a liquidity ratio which tells if company is able to pay short term liabilities those are due within one year. Quick ratio is a liquidity ratio that tells about ability of company to pay its current liabilities without selling its inventory or financing marketable securities. Cash ratio is a liquidity ratio that tells about ability of company to pay its current liabilities with cash or cash - equivalents.Part 1. Current ratio = current assets / current liabilities Current assets = cash + account receivable + inventory+ marketable securities = 369,000 + 795,400 + 975,800 + 123,000 =$2,263,200 Current liabilities = accounts payable + accrued expenses = 631000 + 189,000 = $820,000 Current ratio = $2,263,200 / $820,000 = 2.76 The company’s current ratio is good as it can pay off 276% of its liabilities with its current assets. Part 2. Quick ratio = (Cash + Account receivable + marketable securities)/ current liabilities =(369,000 + 795,400 +123,000) / 820,000 = $1,287,400 / $820,000 = 1.57 The company’s quick ratio is more than 1:1, so it is better. Part 3. Cash ratio = cash / current liabilities = 369,000 / 820,000 = 0.45 The company can met only 45% of its current liabilities with cash and cash equivalents.

Answered: Cornerstone Exercise 8-33 (Algorithmic)…

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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Cornerstone Exercise 8-33 (Algorithmic)
Liquidity Ratios

XYZ's financial statements contain the following information:

Cash	$369,000
Accounts receivable	795,400
Inventory	975,800
Marketable securities	123,000
Accounts payable	631,000
Accrued expenses	189,000
Long-term debt	1,010,000

Round answers to two decimal places.

Required:

1. What is its current ratio?

2. What is its quick ratio?

3. What is its cash ratio?

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