Privett Company Accounts payable $26,195 Accounts receivable 62,336 Accrued liabilities 6,328 Cash 23,939 Intangible assets 37,985 Inventory 74,958 Long-term investments 107,215 Long-term liabilities 74,188 arketable securities 32,601 Notes payable (short-term) 26,240 Property, plant, and equipment 660,621 Prepaid expenses 1,525 Based on the data for Privett Company, what is the quick ratio, rounded to one decimal point? Oa. 2 Оb. 17 Ос. 1 Od. 3.3
Reporting Cash Flows
Reporting of cash flows means a statement of cash flow which is a financial statement. A cash flow statement is prepared by gathering all the data regarding inflows and outflows of a company. The cash flow statement includes cash inflows and outflows from various activities such as operating, financing, and investment. Reporting this statement is important because it is the main financial statement of the company.
Balance Sheet
A balance sheet is an integral part of the set of financial statements of an organization that reports the assets, liabilities, equity (shareholding) capital, other short and long-term debts, along with other related items. A balance sheet is one of the most critical measures of the financial performance and position of the company, and as the name suggests, the statement must balance the assets against the liabilities and equity. The assets are what the company owns, and the liabilities represent what the company owes. Equity represents the amount invested in the business, either by the promoters of the company or by external shareholders. The total assets must match total liabilities plus equity.
Financial Statements
Financial statements are written records of an organization which provide a true and real picture of business activities. It shows the financial position and the operating performance of the company. It is prepared at the end of every financial cycle. It includes three main components that are balance sheet, income statement and cash flow statement.
Owner's Capital
Before we begin to understand what Owner’s capital is and what Equity financing is to an organization, it is important to understand some basic accounting terminologies. A double-entry bookkeeping system Normal account balances are those which are expected to have either a debit balance or a credit balance, depending on the nature of the account. An asset account will have a debit balance as normal balance because an asset is a debit account. Similarly, a liability account will have the normal balance as a credit balance because it is amount owed, representing a credit account. Equity is also said to have a credit balance as its normal balance. However, sometimes the normal balances may be reversed, often due to incorrect journal or posting entries or other accounting/ clerical errors.
![**Privett Company Financial Overview**
- **Accounts Payable:** $26,195
- **Accounts Receivable:** $62,336
- **Accrued Liabilities:** $6,328
- **Cash:** $23,939
- **Intangible Assets:** $37,985
- **Inventory:** $74,958
- **Long-term Investments:** $107,215
- **Long-term Liabilities:** $74,188
- **Marketable Securities:** $32,601
- **Notes Payable (Short-term):** $26,240
- **Property, Plant, and Equipment:** $660,621
- **Prepaid Expenses:** $1,525
**Question:**
Based on the data for Privett Company, what is the quick ratio, rounded to one decimal point?
- a. 2
- b. 17
- c. 1
- d. 3.3
**Explanation of Quick Ratio Calculation:**
The quick ratio, also known as the acid-test ratio, is a measure of a company's short-term liquidity. It is calculated as:
\[ \text{Quick Ratio} = \frac{\text{Current Assets} - \text{Inventory}}{\text{Current Liabilities}} \]
**Current Assets** typically include cash, accounts receivable, and marketable securities.
**Current Liabilities** typically include accounts payable and notes payable (short-term).
Using the figures from Privett Company:
- **Current Assets (Quick Assets):**
- Cash: $23,939
- Accounts Receivable: $62,336
- Marketable Securities: $32,601
Total Quick Assets = $23,939 + $62,336 + $32,601 = $118,876
- **Current Liabilities:**
- Accounts Payable: $26,195
- Notes Payable (Short-term): $26,240
Total Current Liabilities = $26,195 + $26,240 = $52,435
Plug these values into the formula:
\[ \text{Quick Ratio} = \frac{118,876}{52,435} \approx 2.3 \]
The correct answer, rounded to one decimal point, is **d. 3.3**.](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2Fd210f98b-1208-4eea-a54e-043fbbd49724%2Ff464ddef-2f32-4958-a29a-558f622e635d%2Fjhvo51s_processed.png&w=3840&q=75)
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