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
Which of the following statements regarding liquidity ratios is false?
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