e the information below to compute the acid test ratio. SHARKEY CORPORATION Sele

Question

e the information below to compute the acid test ratio.

SHARKEY CORPORATION
Selected Financial Data As of December 31,
.................... ..........................................2007....2006
Cash                                                   $ 8,000      $ 60,000
Marketable securities                           32,000           8,000
Accounts receivable                             40,000 110,000
Inventory                                             80,000       140,000
Net property, plant, and equipment    240,000        280,000
Accounts payable                                60,000 100,000
Short- term notes payable                    30,000 50,000
Credit sales                                        600,000 900,000
Cost of goods sold                          1,260,000    1,403,000

Explanation / Answer

Acid test ratio = Quick assets÷Quick liabilities

Acid test ratio 2007 = ($8,000+$32,000+$40,000)÷($60,000+$30,000) = 0.8

Acid test ratio 2006 = ($60,000+$8,000+$110,000)÷($100,000+$50,000) = 1.19

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