ExpertHard1 markMultiple Choice
CPA · Question 47 · Area I: Financial Reporting
Granite Corp. has the following current assets and current liabilities:<br/>- Accounts receivable: $180,000<br/>- Inventory: $220,000<br/>- Prepaid expenses: $40,000<br/>- Accounts payable: $160,000<br/>- Accrued wages: $50,000<br/>- Current portion of long-term debt: $90,000<br/><br/>What is Granite's quick ratio (acid-test ratio)?
Granite Corp. has the following current assets and current liabilities:<br/>- Accounts receivable: $180,000<br/>- Inventory: $220,000<br/>- Prepaid expenses: $40,000<br/>- Accounts payable: $160,000<br/>- Accrued wages: $50,000<br/>- Current portion of long-term debt: $90,000<br/><br/>What is Granite's quick ratio (acid-test ratio)?
Answer options:
A.
0.60
B.
0.73
C.
1.33
D.
1.47
How to approach this question
Calculate quick ratio as quick assets (cash, short-term investments, accounts receivable) divided by current liabilities. Exclude inventory and prepaid expenses from quick assets as they are less liquid.
Full Answer
A.0.60✓ Correct
0.60
The quick ratio (acid-test ratio) measures immediate liquidity by comparing quick assets to current liabilities. Quick assets are the most liquid current assets: typically cash, short-term investments, and accounts receivable. Inventory and prepaid expenses are excluded because they are less readily convertible to cash.
Common mistakes
Including inventory or prepaid expenses in quick assets, using wrong current liability amounts, or calculation errors
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