Use the information below for Privett Company to answer the question that follow. Privett Company Accounts payable $ 30,000 Accounts receivable 35,000 Accrued liabilities 7,000 Cash 25,000 Intangible assets 40,000 Inventory 72,000 Long-term investments 100,000 Long-term liabilities 75,000 Marketable securities 36,000 Notes payable (short-term) 20,000 Property, plant, and equipment 400,000 Prepaid expenses 2,000 Based on the data for Privett Company, what is the quick ratio, rounded to one decimal point

The quick ratio of the company is 1.6

Explanation:

The formula for computing the Quick ratio using the formula as:

Quick ratio = (Cash + Marketable Securities + Accounts Receivable) / Current Liabilities

where

Cash is $25,000

Marketable securities is $36,000

Accounts Receivable is $35,000

Current liabilities involve:

Current liabilities = Accounts Payable + Accrued liabilities + Notes Payable

Current liabilities = $30,000 + $7,000 + $20,000

Current liabilities = $57,000

Putting the values above:

Quick ratio = $25,000 + $36,000 + $35,000  / $57,000

Quick ratio = $96,000 / $57,000

Quick ratio = 1.6

Note: Prepaid expense is not considered in quick ratio as usually the inventories take time to convert into cash and the prepaid could not be used to pay the current liabilities.

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