Question

The Crafter Company has the following assets and liabilities:

ASSETS
Cash $28,000
Accounts receivable $15,000
Inventory $20,000
Equipment $50,000
LIABILITIES
Current portion of long-term debt $10,000
Accounts payable $2,000
Long-term debt $25,000
Determine the quick ratio (rounded to one decimal point).
a. 5.3
b. 3.6
c. 3.3
d. 2.3

Answer 1

The quick ratio for the Crafter Company, when rounded to one decimal point, is 3.6. This is calculated by adding cash and accounts receivable to get the quick assets and dividing by the sum of the current portion of long-term debt and accounts payable to get current liabilities.

Step-by-step explanation:

The quick ratio is a measure of a company's ability to meet its short-term obligations with its most liquid assets. To calculate the quick ratio, you subtract inventory from current assets and then divide by current liabilities. Using the following information provided: Cash $28,000, Accounts Receivable $15,000, Inventory $20,000, Equipment $50,000, Current portion of long-term debt $10,000, Accounts payable $2,000, Long-term debt $25,000, we find that the quick assets (Cash + Accounts Receivable) equal $43,000. The current liabilities (Current portion of long-term debt + Accounts payable) equal $12,000. Therefore, the quick ratio is $43,000 divided by $12,000, which equals 3.6 when rounded to one decimal point.