Discount Travel has the following current assets: cash, $102 million receivables, $94 million inventory, $182 million and other current assets, $18 million. Discount Travel also has the following liabilities: accounts payable, $98 million current portion of long-term debt, $35 million and long-term debt, $23 million. Based on these amounts, what is the acid-test ratio?

A) 1.47.

B) 2.00.

C) 2.84.

D) 3.86.

Answer: A

Discount Travel has the following current assets: cash, $102 million receivables, $94 million inventory, $182 million and other current assets, $18 million. Discount Travel also has the following liabilities: accounts payable, $98 million current portion of long-term debt, $35 million and long-term debt, $23 million. Based on these amounts, what is the current ratio?

A) 2.54.

B) 2.98.

C) 4.04.

D) 2.84.

Answer: B

A) A high current ratio generally indicates the ability to pay current liabilities on a timely basis.

B) A high acid-test ratio generally indicates the ability to pay current liabilities on a timely basis.

C) All current assets are due within one year and therefore have essentially equal liquidity.

D) As a rule of thumb, a current ratio of 1 or higher often reflects an acceptable level of liquidity.

Answer: C