A Level Accounting (9706)•9706/12/M/J/24
Explanation
Acid test ratio (quick ratio) excludes inventories from current assets Steps:
- Calculate quick assets: trade receivables + cash and cash equivalents = 75,000 = $160,000.
- Identify current liabilities: only trade payables of $36,000 are given.
- Apply formula: quick assets ÷ current liabilities = 36,000 ≈ 4.44:1.
- Result not among choices, indicating other current liabilities (e.g., short-term debt) likely exist but are not provided.
Not enough information.
Why A is correct:
- Cannot confirm; calculation yields 4.44:1, not 1.78:1, unless undisclosed liabilities total ~$90,000.
Why the others are wrong:
- B: Exceeds quick assets/receivables ratio (~2.36:1 max with given data).
- C: Too high; implies unrealistically low liabilities (~$57,000).
- D: Matches including inventories (~8.6:1), violating quick ratio definition.
Final answer: Not enough information.
Topic: Analysis and communication of accounting information
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