A balance sheet included cash ($4,000,000), accounts receivable ($16,000,000), i

Question

A balance sheet included cash ($4,000,000), accounts receivable ($16,000,000), inventories ($10,000,000), prepaid expenses ($2,000,000), accounts payable ($9,000,000), and accrued expenses ($7,000,000). These are the only current items.

A.   The quick ratio is 2:1.
B.   The quick ratio is 1.25:1.
C.   The current ratio is 1.875:1.
D.   Both A and C.
E.   None of these.
A balance sheet included cash ($4,000,000), accounts receivable ($16,000,000), inventories ($10,000,000), prepaid expenses ($2,000,000), accounts payable ($9,000,000), and accrued expenses ($7,000,000). These are the only current items.

A.   The quick ratio is 2:1.
B.   The quick ratio is 1.25:1.
C.   The current ratio is 1.875:1.
D.   Both A and C.
E.   None of these.

Explanation / Answer

correct answer is B .   The quick ratio is 1.25:1.

Quicj ratio will exclude the inventories and prepaid expenses from crrent ratio

cash               4,000,000 AR             16,000,000 inventories             10,000,000 prepaid expenses               2,000,000 Current assests             32,000,000 AP               9,000,000 accrued expenses               7,000,000 current liabilities             16,000,000 Current ratio                          2.00 Quick ratio                          1.25

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