Question

Markus Company’s common stock sold for $2.75 per share at the end of this year. The company paid a common stock dividend of $0.55 per share this year. It also provided the following data excerpts from this year’s financial statements:     

	Ending Balance		Beginning Balance
Cash	$	35,000	$	30,000
Accounts receivable	$	60,000	$	50,000
Inventory	$	55,000	$	60,000
Current assets	$	150,000	$	140,000
Total assets	$	450,000	$	460,000
Current liabilities	$	60,000	$	40,000
Total liabilities	$	130,000	$	120,000
Common stock, $1 par value	$	120,000	$	120,000
Total stockholders’ equity	$	320,000	$	340,000
Total liabilities and stockholders’ equity	$	450,000	$	460,000

     

	This Year
Sales (all on account)	$	700,000
Cost of goods sold	$	400,000
Gross margin	$	300,000
Net operating income	$	140,000
Interest expense	$	8,000
Net income	$	92,400

8. What is the acid-test ratio at the end of this year?

Answer 1

	Acid Test Ratio	=	1.58
	Workings:
	Acid Test Ratio	=	Current Assets (except Inventory) / Current Liabilities
		=	$95000 / $60000
		=	1.58
		Ending Balance
	Cash	$     35,000
	Accounts receivables, net	$     60,000
(a)	Current assets	$     95,000
	Current Liabilities
	Current Liabilities	$     60,000
(b)	Current Liabilities	$     60,000
(a) / (b)	Acid Test Ratio	1.58