Answer:
Quick ratio = Current assets - Inventory/Current liabilities
= $480,000 - $340,000/$40,000
= 3.5
Current assets = $120,000 + $340,000 + $20,000 = $480,000
Current liabilities = $20,000 + $20,000 = $40,000
Explanation:
Explanation: Quick ratio is the ratio of liquid assets to current liabilities. Liquid assets are current assets less inventory. Liquid assets amounted to $140,000 while current liabilities are $40,000. The division of liquid assets by current liabilities gives quick ratio.
The quick ratio is 3.5.
Quick ratio is a liquidity ratio. It measures the ability of a firm's short-term assets to meet its current liabilities. It is also known as acid test ratio
Quick ratio = (cash + accounts receivable) / current liabilities
Cash + accounts receivable = $120,000 + $20,000 = $140,000
Current liabilities = accounts payable + current liabilities
$20,000 + $20,000 = $40,000
Quick ratio = $140,000 / $40,000 = 3.5
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