A Company Reported the Following Year-End Information Required:
Explain the Purpose of the Acid-Test Ratio

question 175

Essay

A company reported the following year-end information:
$$\begin{array} { | l | r | } \hline \text { Cash } & \$ 52,000 \\\hline \text { Short-term investments } & 12,000 \\\hline \text { Accounts receivable } & 54,000 \\\hline \text { Inveritory } & 325,000 \\\hline \text { Prepaid expenses } & 17,500 \\\hline \text { Accounts payable } & 106,500 \\\hline \text { Other current payables } & 25,000 \\\hline\end{array}$$
Required:
Explain the purpose of the acid-test ratio.
Calculate the acid-test ratio for this company.
What does the acid-test ratio reveal about this company?

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Definitions:

Demographic Groups

Categories of populations based on characteristics such as age, race, gender, income level, and education.

Matching Funds

Financial contributions from a government or organization that match the funds raised by an entity, often used in campaigns or research projects to double the available resources.

Presidential Nomination

The process by which political parties select and nominate a candidate to run for the presidency.

Demographic Groups

Categories of people segmented by identifiable characteristics such as age, race, gender, or income.