Question

Horizon Company has the following current account information for a recent balance sheet: Cash $ 25,000;Temporary investments 25,000; Accounts receivable 125,000; Merchandise inventory 100,000; Accounts payable 75,000; Accrued expenses 25,000 What are the current and quick ratios? Select one: a. 2.75, 0.50 b. 2.50, 1.50 c. 1.75, 2.50 d. 2.75, 1.75

Answer 1

Explanation:

Given .

cash 25000

temporary investment 25000

a/c receivable 125000

Merchandise inventory 100000

a/c payable 75000

Accrued expenses 25000

Now,

we know that

a) Current ratios = C.A/ C.L

Current asset = cash+ temporary investment+ merchandise inventory + account receivable

Current assets= 25000+25000+125000+10000= 275000

Current liabilities= account payable+ accrued expenses

Current liabilities= 75000+25000= 100000

Now,

current ratios= 275000/100000= 2.75

b) Quick ratio= Quick asset / C.L

Quick asset = cash + temporary investment + a/c receivable

Quick asset = 25000+25000+125000= 175000

Now,

Quick ratio= 175000/100000= 1.75

So, d) is your answer

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