Answer (A) is correct . The acid test, or quick, ratio equals the quick assets (cash, marketable securities, and accounts receivable) divided by current liabilities. Current assets equal the quick assets plus inventory and prepaid expenses. (This question assumes that the entity has no prepaid expenses.)? Given current assets of $5,000, inventory of $2,000, and no prepaid expenses, the quick assets must be $3,000. Because the acid test ratio is 2.0, the quick assets are double the current liabilities. Current liabilities therefore are equal to $1,500 ($3,000 quick assets ¡Â 2.0).
Answer (B) is incorrect because Dividing the current assets by 2.0 results in $2,500. Current assets includes inventory, which should not be included in the calculation of the acid test ratio.
Answer (C) is incorrect because Adding inventory to current assets rather than subtracting it results in $3,500.
Answer (D) is incorrect because Multiplying the quick assets by 2 instead of dividing by 2 results in $6,000.
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