Quick Ratio Gmeiner Co. had the following current assets and liabilities on Dece

Question

Quick Ratio Gmeiner Co. had the following current assets and liabilities on December 31 of two recent years: Current Year Previous Year Current assets: Cash Accounts receivable Inventory $685,000 607,000 375,000 $1,667,000 $609,000 287,000 242,000 $1,138,000 Total current assets Current liabilities: Current portion of long-term debt Accounts payable Accrued and other current liabilities $109,000 218,000 353,000 $680,000 $96,000 192,000 352,000 $640,000 Total current liabilities a. Determine the quick ratio for December 31 of both years. If required, round your answers to one decimal place. Quick Ratio Previous year: Current year: b. How did the quick ratio change between the two balance sheet dates? Decreased Increased

Explanation / Answer

Quick ratio = (current assets – inventories) / current liabilities, or.

Quick ratio = (cash and equivalents + marketable securities + accounts receivable) / current liabilities

Quick ratio (Current year) = (685000 +607000) / 680000 = 1.9:1

or (1667000 - 375000) / 680000 = 1.9:1

Quick ratio (Previous Year) = (609000 + 287000) / 640000 = 1.4:1or

= (1138000 - 242000) / 640000 = 1.4:1

b) How did the quick ratio change between the two balance sheet dates ?

Answer = Increased

Ideal quick ratio = 1:1 or higher

Quick ratio increased from 1.4:1 to 1.9:1

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