Chapter 15, Problem 4QC

To determine

Acid-Test Ratio: This ratio denotes that this ratio is a more rigorous test of solvency than the current ratio. It is determined by dividing quick assets and current liabilities. The acceptable acid-test ratio is 0.90 to 1.00.

Formula:

$\text{Acid Ratio}=\frac{\text{Quick assets}}{\text{Current}\text{liabilities}}$

Quick Assets are those assets that are most liquid. The examples of quick assets include cash and bank balances, marketable securities, and sundry debtors.

Formula:

$\text{Quick Assets}=\text{Current assets}-\left(\text{Stock}+\text{Prepaid Expenses}\right)$

To calculate: The acid-test ratio for 2019.