A business has current assets of $90,000 (including inventory of $30,000) and current liabilities of $40,000. What is the acid test ratio?

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Question

A business has current assets of $90,000 (including inventory of $30,000) and current liabilities of $40,000. What is the acid test ratio?

Accepted Answer

1.5:1 — Acid test ratio = (Current assets − Inventory) ÷ Current liabilities = ($90,000 − $30,000) ÷ $40,000 = $60,000 ÷ $40,000 = 1.5:1. Option B uses all current assets without deducting inventory ($90,000 ÷ $40,000 = 2.25:1), which is the current ratio. Option C doubles the numerator erroneously. Option D inverts the formula.

Answer

0.75:1

Answer

3.0:1

Answer

2.25:1

Answer

1.5:1

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