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.