Question

The balance sheet and income statement shown below are for Koski Inc. Note that the firm has no amortization charges, it does not lease any assets, none of its debt must be retired during the next 5 years, and the notes payable will be rolled over.

Balance Sheet (Millions of $)
Assets		2019
Cash and securities		$4,200
Accounts receivable		17,500
Inventories		20,300
Total current assets		$42,000
Net plant and equipment		$28,000
Total assets		$70,000
Liabilities and Equity
Accounts payable		$27,531
Accruals		12,369
Notes payable		5,000
Total current liabilities		$44,900
Long-term bonds		$9,000
Total liabilities		$53,900
Common stock		$3,864
Retained earnings		12,236
Total common equity		$16,100
Total liabilities and equity		$70,000
Income Statement (Millions of $)		2019
Net sales		$112,000
Operating costs except depreciation		104,160
Depreciation		2,240
Earnings before interest and taxes (EBIT)		$5,600
Less interest		840
Earnings before taxes (EBT)		$4,760
Taxes		1,190
Net income		$3,570
Other data:
Shares outstanding (millions)		500.00
Common dividends (millions of $)		$1249.50
Int rate on notes payable & L-T bonds		6%
Federal plus state income tax rate		25%
Year-end stock price		$68.54

Refer to Exhibit 4.1. What is the firm's quick ratio? Do not round your intermediate calculations.

a. 0.48

b. 0.60

c. 0.52

d. 0.58

Answer 1

ANS: Quick Ratio is also known as Acid-Test Ratio.

Quick Ratio = Liquid Current Assets / Total Current Liabilities

Liquid Current Assets Includes cash, marketable Securities & Receivables, But do not includes stock (Inventories)

Therefore, Liquid Assets = Total Current Assets - Inventory

= $ 42000 - $ 20300

  = $ 21700

OR, Liquid Current Assets = Cash & securities + Account Receivable

= $ 4200 + $ 17500

= $ 21700

And, Total Current liabilities (Given) = $ 44900

So, Firm's Quick Ratio = $ 21700 / $ 44900

= 0.48

So, option A is correct.