Brief Exercise 8-15 Calculate current and acid-test ratios (LO8-6) Airline Acces

Question

Brief Exercise 8-15 Calculate current and acid-test ratios (LO8-6)

Airline Accessories has the following current assets: cash, $104 million; receivables, $96 million; inventory, $184 million; and other current assets, $20 million. Airline Accessories has the following liabilities: accounts payable, $102 million; current portion of long-term debt, $37 million; and long-term debt, $25 million. Based on these amounts, calculate the current ratio and the acid-test ratio for Airline Accessories. (Enter your answers in millions (i.e. 5,000,000 should be entered as 5).)

Current Ratio:?

Acid Test Ratio:?

Explanation / Answer

Current assets = 104+96+184+20 = 404

Current liabiliites = 102+37 = 139

Current ratio = Current assets/current liabilities

= 404/139

Current ratio = 2.91

Acid test ratio = (current assets-inventory)/Current liabilities

= (404-184)/139

Acid test ratio = 1.58

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