The following balance sheet information is provided for Jordan Company for 2014:

Question

The following balance sheet information is provided for Jordan Company for 2014:

  
What is the company's quick (acid-test) ratio? (Round your final answer to 2 decimal places.)

Answer: 1.37

Could you explain how? Thanks!

  Assets    Cash $ 4,600    Accounts receivable 10,750   Inventory 14,300    Prepaid expenses 1,100    Plant and equipment, net of depreciation 19,000    Land 12,900 Total assets $ 62,650 Liabilities and Stockholders' Equity    Accounts payable $ 2,490    Salaries payable 8,730    Bonds payable (Due in 2020) 9,500    Common stock, no par 19,000    Retained earnings 22,930 Total liabilities and stockholders' equity $ 62,650

Explanation / Answer

Acid test ratio=Quick assets/Current liabilities

=(Cash+AR)/(AP+Salary payable)

=(4600+10750)/(2490+8730)

which is equal to

=1.37(Approx).

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