Question 26 Using the following year-end information for Breanna Boutique, calculate the current ratio and acid-test ratio for the boutique:
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Cash.
$ 52,000
arked out of
.00
Short-term investment.
12,000
54,000
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Accounts Receivable.
325,000
17,500
Inventory
Prepaid expenses
Account payable.
Other current payables.
106,500
25,000

3.50 and 0.90

Explanation:

Calculation for the current ratio and acid-test ratio for the boutique

Calculation of CURRENT RATIO

First step is to calculate the current assets and current liabilities

CURRENT ASSETS

Cash 52,000

Short-term investment 12,000

Accounts receivable 54,000

Inventory 325,000

Prepaid expenses17,500

Total current assets$ 460,500

CURRENT LIABILITIES

Accounts payable$ 106,500

Other current payables$ 25,000

Total current liabilities$ 131,500

Using this formula

Current ratio=Current assets/Current Liabilities

Let plug in the formula

Current ratio=460,500/131,500

Current ratio=3.50

Therefore the Current ratio will be 3.50

Calculation for CURRENT ACID -TEST RATIO

Using this formula

Current acid-test ratio=Quick assets/Current Liabilities

Let plug in the formula

Current acid-test ratio=460,500-(325,000+17,500)/131,500

Current acid-test ratio=118,000/131,500

Current acid-test ratio=0.90

Therefore the Current acid-test ratio will be 0.90

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