A Miami GC has cash of $92,000, accounts receivable of $188,000, inventory of $70,000, and current liabilities of $350,000. What quick ratio should be reported?
Correct Answer
C) 0.80 to 1
The quick ratio excludes inventory here, so quick assets are $280,000. $280,000 divided by $350,000 equals 0.80.
Why This Is the Correct Answer
The quick ratio excludes inventory here, so quick assets are $280,000. $280,000 divided by $350,000 equals 0.80.
Why the Other Options Are Wrong
Option A: 1.00 to 1
1.00 to 1 is above the supported result for quick ratio; it likely adds an unsupported amount or compares the wrong financial base.
Option B: 0.53 to 1
0.53 to 1 is below the supported result for quick ratio; it likely uses the wrong base, period, or account bucket.
Option D: 1.29 to 1
1.29 to 1 is above the supported result for quick ratio; it likely adds an unsupported amount or compares the wrong financial base.
Memory Technique
Owner Wants money test: bucket before math for quick ratio.
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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