The following balance sheet information is provided for Frederick Company: 6) As

Question

The following balance sheet information is provided for Frederick Company: 6) Assets Cash $ 5,000 Accounts receivable 11,150 Inventory 15,000 Prepaid expenses 1,800 Plant and equipment, net of depreciation 19,700 Land 13,600 Total assets $ 66,250 Liabilities and Stockholders' Equity Accounts payable $ 4,310 Salaries payable 10,030 Bonds payable (due in 2022) 9,000 Common stock, no par 21,910 Retained earnings 21,000 Total liabilities and stockholders' equity $ 66,250 The company's quick (acid-test) ratio is closest to: A) 1.4 B) 2.3 C) 0.9 D) 1.1

Explanation / Answer

The company's quick (acid-test) ratio is closest to 1.1

Quick (acid-test) Ratio = Quick Assets / Total Current Liabilities

Quick Assets

= Cash + Accounts Receivables

= $5,000 + $11,500

= $16,150

Total Current Liabilities

= Accounts Payable + Salary Payables

= $4,310 + $10,030

= $14,340

Therefore, Quick Ratio = $16,150 / $14,340 = 1.1

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