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A bakery has total current assets of $83,200, of which $15,000 is inventory, and total current liabilities of $60,150. What is its acid-test ratio?
A1.4
B0.9
C1.1
D2.5
Answer & Solution
Correct answer: C. 1.1
1. The acid-test ratio takes total current assets excluding inventory over total current liabilities.
2. Strip out inventory first: $83,200 minus $15,000 equals $68,200.
3. The denominator stays at total current liabilities of $60,150.
4. Divide: $68,200 divided by $60,150 equals 1.13.
5. Rounded to one decimal place, the acid-test ratio is 1.1.
6. An acid-test ratio of at least 1 is preferred, though what counts as acceptable varies by industry.
7. Answering 1.4 skips the inventory deduction and simply reports the current ratio.
_Source: OpenStax Introduction to Business (CC BY 4.0), Ch 14 "Using Financial Information and Accounting", section 14.7 Analyzing Financial Statements_
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