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

question 134

Multiple Choice

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

• A) Liabilities are divided by current assets.
• B) Prepaid expenses and inventory are excluded from the calculation of the acid-test ratio.
• C) The acid-test ratio measures profitability and the current ratio does not.
• D) The acid-test ratio excludes short-term investments from the calculation.
• E) The acid-test ratio is a measure of liquidity but the current ratio is not.

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Definitions:

Comparative Advantage

The capacity of a person, business, or nation to create a product or offer a service with a lesser opportunity cost compared to its rivals.

Adam Smith

A Scottish economist and philosopher, known as the "father of modern economics" for his influential works on the nature and causes of the wealth of nations, promoting the idea of free market economies.