You are evaluating the balance sheet for Blue Jays Corporation. From the balance sheet you find the following balances: cash and marketable securities = $200,000, accounts receivable = $800,000, inventory = $1,000,000, accrued wages and taxes = $250,000, accounts payable = $400,000, and notes payable = $300,000. What are Blue Jays' current ratio, quick ratio, and cash ratio, respectively?

a. Current ratio=2.105

b. Quick ratio=1.053

c. Cash ratio=0.211

Explanation:

a.

Step 1: Determine total current assets

The total current assets can be expressed as;

T=C+R+I

where;

T=total current assets

C=cash and marketable securities

R=accounts receivable

I=inventory

In our case;

T=unknown, to be determined

C=$200,000

R=$800,000

I=$1,000,000

replacing;

T = (200,000+800,000+1,000,000) = $2,000,000

Total current assets=$2,000,000

Step 2: Determine total current liabilities

The total current liabilities can be expressed as;

T=W+A+N

where;

T=total current liabilities

W=accrued wages and taxes

A=accounts payable

N=notes payable

In our case;

T=unknown, to be determined

W=$250,000

A=$400,000

N=$300,000

replacing;

T = (250,000+400,000+300,000) = $950,000

Total current liabilities=$950,000

Step 3: Determine current ratio

The current ratio can be expressed as follows;

Current ratio=total current assets/total current liabilities

where;

Current ratio=unknown, to be determined

total current assets=$2,000,000

total current liabilities=$950,000

replacing;

Current ratio = (2,000,000/950,000) = 2.105

b.

Step 4: Determine quick ratio

The quick ratio can be expressed as follows;

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

where;

Quick ratio=unknown, to be determined

current assets=$2,000,000

inventory=$1,000,000

current liabilities=$950,000

replacing;

Quick ratio = (2,000,000-1,000,000) / 950,000

Quick ratio=1,000,000/950,000=1.053

Quick ratio=1.053

c.

Step 4: Determine cash ratio

The cash ratio can be expressed as follows;

Cash ratio = (cash+marketable securities) / current liabilities

where;

Cash ratio=unknown, to be determined

Cash and marketable securities=$200,000

current liabilities=$950,000

replacing;

Cash ratio = (200,000/950,000) = 0.211

Cash ratio=0.211