question archive Selected items from Excellent Company's Statement of Financial Position had balances as follows: Cash 455,000 Accounts Receivables 900,000 Inventory 650,000 Prepaid Assets 68,000 Accrued liabilities 285,000 Accounts Payable 550,000 Notes payable (current portion amounts to P65,000) 650,000 You were requested by the manager to calculate the following for decision-making: 1
Selected items from Excellent Company's Statement of Financial Position had balances as follows: Cash 455,000 Accounts Receivables 900,000 Inventory 650,000 Prepaid Assets 68,000 Accrued liabilities 285,000 Accounts Payable 550,000 Notes payable (current portion amounts to P65,000) 650,000 You were requested by the manager to calculate the following for decision-making: 1
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Selected items from Excellent Company's Statement of Financial Position had balances as follows:
Cash 455,000
Accounts Receivables 900,000
Inventory 650,000
Prepaid Assets 68,000
Accrued liabilities 285,000
Accounts Payable 550,000
Notes payable (current portion amounts to P65,000) 650,000
You were requested by the manager to calculate the following for decision-making:
1. The current ratio is Answer
2. The quick ratio is _____
3. The cash ratio is _____
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- 2.30
- 1.58
- 0.51
Step-by-step explanation
- Determine first the total amount current assets and current liabilities:
| Current Assets (CA) | Current Liabilities (CL) | |
|---|---|---|
| Cash | 455,000 | |
| Accounts receivable | 900,000 | |
| Inventory | 650,000 | |
| Prepaid assets | 68,000 | |
| Accrued Liabilities | 285,000 | |
| Accounts payable | 550,000 | |
| Notes payable - current | 65,000 | |
| Total | 2,073,000 | 900,000 |
- To solve:
- 1) Current ratio* = CA / CL = 2,073,000 / 900,000 = 2.30
- 2) Quick ratio** = (CA - Inventories) / CL = (2,073,000 - 650,000) / 900,000 = 1.58
- 3) Cash ratio*** = (Cash + Cash Equivalents) / CL = 455,000 / 900,000 = 0.51
*liquidity proportion that actions an organization's capacity to pay transient commitments or those due in one year or less. It tells financial backers and examiners how an organization can augment the current resources on its accounting report to fulfill its present obligation and different payables.
**measures an organization's ability to pay its present liabilities without expecting to sell its stock or acquire extra financing. The speedy proportion is viewed as a more safe measure than the current proportion, which incorporates all current resources as inclusion for current liabilities.
***liquidity measure that shows an organization's capacity to cover its transient commitments utilizing just endlessly cash counterparts. The money proportion is inferred by adding an organization's absolute saves of money and close money protections and separating that total by its complete current liabilities. No cash equivalents in this problem.
