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Cash $60,000
Accounts receivable 180,000
Allowance for uncollectible accounts 8,000
Inventory 240,000
Short-term marketable securities 90,000
Prepaid rent 18,000
Current liabilities 400,000
Long-term debt 220,000
What was Redwood's quick ratio?
a.0.81 to1
b.0.83 to1
c.0.94 to1
d.1.46 to1
Redwood's quick ratio answer is0.81 to1
A IS THE CORRECT ANSWER BECAUSE QUICK RATIO = CASH + M.SECURITIES+ A/R DIVIDED BY CURRENT LIABILITIES
Answer is Option A -0.81 to 1
Reason being Quick Ratio is
(Cash + Cash Equivalents+ short term investments+ accounts receivable) /
(current liabilities ):1
b.0.83 to1.........................
quick ratio which includes all other current asset except inventory = (CA- inventory)/Current liability = .85 :answer b
Quick ratio is ((C/A-Inventory)/C/L) this mean that
(Cash + Net A/R +Short-term Marketable Securities + Prepaid rent) / Current Liabilities
=0.85 to1
Note: the prepaid rent is for the one year only not for more than one year
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