Chapter 5, Problem 15E

To determine

Concept Introduction:

Current ratio: It is also known as working capital ratio and it is an efficiency ratio used to compute the company’s ability to pay current liabilities or short term liabilities out of its current assets. It covers all the current assets including inventory and prepaid expenses.

Acid- test ratio: It is also known as the liquidity ratio and it is used to compute the ability of a company to pay its immediate liabilities out of its current assets. Current assets exclude inventory and prepaid expenses.

To Determine: The current ratio and the acid test ratios of the given companies and also analyze which company is in a better position to pay its current liabilities.