Business FinancesQuestion 497 of 1605
A contractor has current assets of $240,000 (including $60,000 in inventory and $20,000 in prepaid expenses) and current liabilities of $100,000. What is the quick (acid-test) ratio?
a.2.40
b.1.60
c.1.80
d.2.20
Explanation
Quick ratio = (Current Assets − Inventory − Prepaid Expenses) ÷ Current Liabilities = ($240,000 − $60,000 − $20,000) ÷ $100,000 = $160,000 ÷ $100,000 = 1.60. The quick ratio is stricter than the current ratio because it removes assets that cannot be converted to cash quickly.
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