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:

Parallel

A circuit configuration where components are connected across common points or junctions, allowing current to divide and flow through multiple paths.

Series

Components in an electrical circuit are said to be in series if they are connected along a single path, so the same current flows through all of the components.

Inductive Reactance

The opposition to alternating current flow due to the inductance of a component or circuit, measured in ohms.

Reactive Power

Also called wattless power. Calculated by multiplying reactive voltage by reactive current. Can be produced by inductive or capacitive loads.