Answer (C) is correct . The quick (acid test) ratio equals the quick assets divided by current liabilities. For Tosh, quick assets consist of cash ($200,000) and accounts receivable ($400,000), a total of $600,000. Current liabilities consist of accounts payable ($160,000), interest payable ($20,000), and notes payable ($100,000), a total of $280,000. Hence, the quick ratio is 2.14 ($600,000 ¡Â $280,000).Answer (A) is incorrect because This ratio includes long-term bonds payable among the current liabilities.
Answer (B) is incorrect because This ratio includes long-term bonds payable among the current liabilities and inventory and prepaid expenses among the quick assets.
Answer (D) is incorrect because This ratio excludes interest payable from the current liabilities.
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The company has a normal operating cycle of 6 months.What is Tosh Enterprises’ quick (acid test) ratio? What is Tosh Enterprises’ quick (acid test) ratio?