
(a)
Acid-Test Ratio: It is a ratio used to determine a company’s ability to pay back its current liabilities using only liquid assets that are current assets except the inventory and prepaid expenses.
Inventory Turnover: It is a part of liquidity ratios used during the process of ratio analysis. It reflects the number of times a company’s inventory is converted into sale during a particular period.
To compute: Four liquidity ratios that are current ratio, acid-test ratio, accounts receivable turnover and inventory turnover at the end of the year for Company N.
(b)
To analyze: The liquidity ratios of N Company with M Company and industry average.

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Chapter 18 Solutions
Accounting Principles, Volume 2: Chapters 13 - 26
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