Exercise 4-13 Computing and analyzing acid-test and current ratios L.O. A1 Compu

Question

Exercise 4-13 Computing and analyzing acid-test and current ratios L.O. A1

Compute the current ratio and acid-test ratio for each of the above separate cases. (Round your answers to 2 decimal places.)

Which company case is in the best position to meet short-term obligations?

Case A Case B Case C Cash $ 800 $ 510 $ 3,200 Short-term investments 0 0 1,100 Current receivables 0 790 800 Inventory 2,000 1,600 1,900 Prepaid expenses 1,200 600 300 Total current assets $ 4,000 $ 3,500 $ 7,300 Current liabilities $ 2,200 $ 1,100 $ 3,650

Explanation / Answer

Inventory and prepaid expenses are excluded from the calculation of the acid-test ratio.

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