A restaurant reported the following current assets: cash $12,000, credit card receivables $1,800, accounts receivable $180, food inventory $4,400, and prepaid expenses, $1,120. Current liabilities total $7,800. Answer the following:

a. Calculate the current ratio.

b. Calculate the quick ratio (acid test ratio).

a. 2.50 times

b. 1.94 times

Explanation:

The current ratio is a financial ratio that shows how easily a company can settle current liabilities using current assets.

It is given as the ration of current assets to current liabilities.

Acid test ratio is similar to current asset except that inventory is not included in the current assets computation.

Given;

current assets: cash $12,000, credit card receivables $1,800, accounts receivable $180, food inventory $4,400, and prepaid expenses, $1,120

Total current assets = $12,000 + $1,800 + $180 + $4,400 + $1,120

= $19,500

Current liabilities = $7,800

Current ratio = $19,500/$7,800 = 2.50 times

Quick ratio = ($19,500 - $4,400) / $7,800 = 1.94 times