Question

You are evaluating the balance sheet for PattyCake’s Corporation. From the balance sheet you find the following balances: cash and marketable securities = $440,000; accounts receivable = $1,120,000; inventory = $2,020,000; accrued wages and taxes = $460,000; accounts payable = $760,000; and notes payable = $520,000. Calculate PattyCakes’ current ratio. (Round your answer to 2 decimal places.) Calculate PattyCakes’ quick ratio. (Round your answer to 2 decimal places.) Calculate PattyCakes’ cash ratio. (Round your answer to 2 decimal places.)

Answer 1

current assets =  cash + accounts receivable + inventory =  $440,000 + $1,120,000 + $2,020,000 = $3,580,000

current liabilities =  accrued wages and taxes + accounts payable + notes payable =  $460,000 + $760,000 + $520,000 = $1,740,000

current ratio = current assets / current liabilities

current ratio = $3,580,000 / $1,740,000 = 2.06

quick ratio = (current assets - inventory) / current liabilities

quick ratio = ($3,580,000 - $2,020,000) / $1,740,000 = 0.90

cash ratio =  cash / current liabilities

cash ratio =  $440,000 / $1,740,000 = 0.25