Refer to the Following Selected Financial Information from McCormik, LLC

question 93

Multiple Choice

Refer to the following selected financial information from McCormik, LLC. Compute the company's acid-test ratio for Year 2. $\begin{array}{|l|r|r|}\hline & \text { Year 2 } & {\text { Year 1 }} \\\hline \text { Cash } & \$ 37,500 & 36,850 \\\hline \text { Short-term investments } & 90,000 & 90,000 \\\hline \text { Accounts receivable, net } & 85,500 & 86,250 \\\hline \text { Merchandise inventory } & 121,000 & 117,000 \\\hline \text { Prepaid expenses } & 12,100 & 13,500 \\\hline \text { Plant assets } & 388,000 & 392,000 \\\hline \text { Accounts payable } & 113,400 & 111.750 \\\hline \text { Net sales } & 711,000 & 706,000 \\\hline \text { Cost of goods sold } & 390,000 & 385,500 \\\hline\end{array}$

• A)1.98.
• B)3.05.
• C)1.88.
• D)2.26.
• E)2.95.

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Definitions:

Net Income

The total profit of a company after all revenues and gains are added together and all expenses and losses are subtracted.

Net Cash

The sum of all cash and cash equivalents that a company holds, subtracting liabilities that need to be paid immediately.

Operating Activities

The recurring operations of a business that pertain to providing its main goods or services and generate revenue.

Net Cash

The actual cash that is available with a company after all deductions, including expenses and liabilities, have been made.