A Company Reported the Following Year-End Information Required:
A

question 16

Essay

A company reported the following year-end information:
$\begin{array}{|l|r|}\hline \text { Cash } & \$ 52,000 \\\hline \text { Short-term investments } & 12,000 \\\hline \text { Accounts receivable } & 54,000 \\\hline \text { Inventory } & 325,000 \\\hline \text { Prepaid expenses } & 17,500 \\\hline \text { Accounts payable } & 106,500 \\\hline \text { Other current payables } & 25,000 \\\hline\end{array}$ Required:
a. Explain the purpose of the acid-test ratio.
b. Calculate the acid-test ratio for this company.
c. What does the acid-test ratio reveal about this company?

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Definitions:

Fibrous

Composed of or characterized by the presence of fibers.

Inarticulate

Lacking the ability to express oneself clearly or effectively in speech or writing.

Epiphyseal Plate

Site at which bone growth in length occurs; located between the epiphysis and diaphysis of a long bone; area of hyaline cartilage where cartilage growth is followed by endochondral ossification; also called metaphysis or growth plate.

Synchondrosis

Synchondrosis is a type of joint where bones are joined by hyaline cartilage, allowing for growth or movement, as seen in the growth plates of children.