A Boca Raton GC has cash of $175,000, receivables of $505,000, securities of $85,000, inventory of $155,000, and current liabilities of $765,000. What quick ratio results?
Correct Answer
A) 1.00 to 1
Quick assets exclude inventory, so cash, receivables, and securities are divided by current liabilities.
Why This Is the Correct Answer
Quick assets exclude inventory, so cash, receivables, and securities are divided by current liabilities.
Why the Other Options Are Wrong
Option B: 0.89 to 1
0.89 to 1 is below the supported result for quick ratio; it likely uses the wrong base, period, or account bucket.
Option C: 1.20 to 1
1.20 to 1 is above the supported result for quick ratio; it likely adds an unsupported amount or compares the wrong financial base.
Option D: 0.34 to 1
0.34 to 1 is below the supported result for quick ratio; it likely uses the wrong base, period, or account bucket.
Memory Technique
Assets and exclude live in different drawers; Owner Wants tells which opens.
Reference Hint
Open-book path: tab Builder's Guide to Accounting, 2001 to Section Three, Financial Ratios, Balance Sheet Ratios; use the job ledger figures in the stem and recompute the same accounting measure.
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