Balance Sheet
Current assets
Cash 1,010,000
Acc receivable not given
Inventories 1,150,000
Fixed assets 4,100,000
TOTAL ASSETS 7,200,000

Current liabilities
Acc payable not given
Long-term debt 2,900,000
Common stock 1,010,000
Retained earnings 2,830,000
TOTAL LIAB and EQUITY 7,200,000

Income Statement
Sales 21,600,000
Operating expense 18,140,000
EBIT 3,460,000
Interest expense 348,000
EBT 3,112,000
Taxes 1,245,000
Net income 1,867,000
What is the firm's quick ratio?


Group of answer choices

0.58

6.74

4.70

4.24

0.92

The **Quick Ratio** is a liquidity ratio that measures a firm's ability to pay off its current liabilities without relying on the sale of its inventories. It is calculated using the formula:

\[
\text{Quick Ratio} = \frac{\text{Current Assets} - \text{Inventories}}{\text{Current Liabilities}}
\]

### From the balance sheet:
- **Current Assets** (given): \$1,010,000 (Cash) + Accounts Receivable (not given)
- **Inventories** (given): \$1,150,000
- **Current Liabilities** (Accounts Payable not given)

We are missing the values for **Accounts Receivable** and **Accounts Payable**, but we know the total value for **Total Assets** and **Total Liabilities and Equity**, which will allow us to calculate these values.

Let's break it down step by step:
1. **Current Assets** = \$1,010,000 + Accounts Receivable + \$1,150,000 (Inventories)
2. **Fixed Assets** = \$4,100,000
3. **Total Assets** = \$7,200,000

Thus, using the total assets equation:

\[
\text{Total Assets} = \text{Current Assets} + \text{Fixed Assets}
\]

We can find **Current Assets**:

\[
\text{Current Assets} = \text{Total Assets} - \text{Fixed Assets} = 7,200,000 - 4,100,000 = 3,100,000
\]

So, we have:

\[
\text{Current Assets} = 1,010,000 + \text{Accounts Receivable} + 1,150,000 = 3,100,000
\]

Solving for **Accounts Receivable**:

\[
\text{Accounts Receivable} = 3,100,000 - 1,010,000 - 1,150,000 = 940,000
\]

Now we can move to **Current Liabilities**:

From the balance sheet, **Total Liabilities and Equity** = \$7,200,000. We have the long-term debt, common stock, and retained earnings values. So, we can calculate **Accounts Payable**:

\[
\text{Total Liabilities and Equity} = \text{Current Liabilities} + \text{Long-Term Debt} + \text{Common Stock} + \text{Retained Earnings}
\]

Substituting the values:

\[
7,200,000 = \text{Current Liabilities} + 2,900,000 + 1,010,000 + 2,830,000
\]

Solving for **Current Liabilities**:

\[
\text{Current Liabilities} = 7,200,000 - 2,900,000 - 1,010,000 - 2,830,000 = 460,000
\]

Now that we have all the necessary values:
- **Current Assets** = \$3,100,000
- **Inventories** = \$1,150,000
- **Current Liabilities** = \$460,000

We can calculate the **Quick Ratio**:

\[
\text{Quick Ratio} = \frac{\text{Current Assets} - \text{Inventories}}{\text{Current Liabilities}} = \frac{3,100,000 - 1,150,000}{460,000} = \frac{1,950,000}{460,000} \approx 4.24
\]

Thus, the **Quick Ratio** is **4.24**.

### The correct answer is: 4.24.

Would you like a detailed explanation of any part of this calculation?

---

**5 related questions:**
1. How is the quick ratio different from the current ratio?
2. What is considered a good quick ratio for a company?
3. How would the quick ratio change if the company reduced its inventories?
4. How does the quick ratio relate to liquidity risk?
5. What other ratios can be used to assess short-term liquidity?

**Tip:** Always aim for a balance between liquidity and efficiency when analyzing financial ratios like the quick ratio. Too high a value may indicate idle resources.

Balance Sheet
Current assets
Cash 1,010,000
Acc receivable not given
Inventories 1,150,000
Fixed assets 4,100,000
TOTAL ASSETS 7,200,000

Current liabilities
Acc payable not given
Long-term debt 2,900,000
Common stock 1,010,000
Retained earnings 2,830,000
TOTAL LIAB and EQUITY 7,200,000

Income Statement
Sales 21,600,000
Operating expense 18,140,000
EBIT 3,460,000
Interest expense 348,000
EBT 3,112,000
Taxes 1,245,000
Net income 1,867,000
What is the firm's quick ratio?

Group of answer choices
0.58
6.74
4.70
4.24
0.92

Learn how to calculate the firm's quick ratio using data from a balance sheet and income statement. This solution involves finding accounts receivable, current liabilities, and applying the quick ratio formula. Suitable for finance students.

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