The Acid-Test Ratio Differs from the Current Ratio in That

question 188

Multiple Choice

The acid-test ratio differs from the current ratio in that it

• A)represents the amount of cash on hand instead of the amount of working capital.
• B)excludes inventories and accounts receivable from the numerator of the fraction because of obsolescence and possible nonpayment.
• C)is a stricter test of a company's ability to pay its current debts as they are due.
• D)signals the need to liquidate marketable securities when it drops below 5 to 1.

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Definitions:

Gross Profit Percentage

A financial metric that indicates the portion of revenue that exceeds the cost of goods sold, expressed as a percentage.

Non-Controlling Interest

The portion of equity interest in a subsidiary not attributable to the parent company, representing minority shareholders' claim on assets and earnings.

Intercompany Gain

Profit derived from transactions between subsidiaries or divisions of the same company.

Consolidated Income Statement

Consolidated Income Statement is a financial statement that aggregates the financial performance of a company and its subsidiaries, presenting the overall income, expenses, and net income.