The following amounts were reported on the December 31, 2019, balance sheet: Cash $ 8,000 Land 20,000 Accounts payable 15,000 Bonds payable 120,000 Merchandise inventory 30,000 Retained earnings 80,000 Buildings and equipment, net of accumulated depreciation 180,000 Accounts receivable 22,000 Common stock 40,000 Wages payable 5,000 The acid-test ratio at December 31, 2019 was:

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09-06-2022
Business

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The following amounts were reported on the December 31, 2019, balance sheet: Cash $ 8,000 Land 20,000 Accounts payable 15,000 Bonds payable 120,000 Merchandise inventory 30,000 Retained earnings 80,000 Buildings and equipment, net of accumulated depreciation 180,000 Accounts receivable 22,000 Common stock 40,000 Wages payable 5,000 The acid-test ratio at December 31, 2019 was:

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chilljain33 chilljain33 · Answer 1 · 2022-06-21T09:18:14+02:00

The acid test ratio for the firm as on 31st December 2019 will be 0.85 as per the information contained under the balance sheet.

What is acid-test ratio?

The ratio, which is derived by the division of the current assets less inventories with the current liabilities of the firm, is known as the acid-test or quick ratio.

Using the formula and given information, the acid-test ratio will be computed as,

[tex]\rm Acid\ Test\ Ratio= \dfrac{Current\ Assets\ - Inventories}{Current\ Liabilities}\\\\ Acid\ Test\ Ratio= \dfrac{150000-30000}{140000}\\\\\rm Acid\ Test\ Ratio= 0.85[/tex]

Hence, the acid-test ratio is as computed above.

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