The Acid-Test Ratio Differs from the Current Ratio

question 35

Multiple Choice

The acid-test ratio differs from the current ratio:

• A) Because it excludes prepaid expenses and inventory.
• B) Because it excludes prepaid expenses and inventory and because it measures profitability.
• C) Because it excludes short-term investments.
• D) Because it measures profitability.
• E) Because liabilities are divided by current assets.

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Definitions:

Residential Purposes

The use of property for dwelling or living areas for individuals or families, as opposed to commercial or industrial purposes.

Title Insurance

Insurance that protects real estate owners and lenders against any property loss or damage they might experience because of liens, encumbrances, or defects in the title to the property.

Title Search

A check of public records to confirm a property's legal ownership and identify any claims or liens against it.

Encumbrances

A legal term for a claim, lien, charge, or liability attached to and binding real property.