Question & Answer: Hannah Company has current assets equal to $3,800,000. Of these, $1,200,000 is cash, $1,800,000 is ac…..

Hannah Company has current assets equal to $3,800,000. Of these, $1,200,000 is cash, $1,800,000 is accounts receivable, $500,000 is inventory, and the remainder is marketable securities. Current liabilities total $1,908,000.

Required:

Note: Round answers to two decimal places.

1. Calculate the current ratio.

2. Calculate the quick ratio (acid-test ratio).

Expert Answer

Current ratio = Current assets / Current liabilities

3800000 / 1908000 = 1.992 times

Quick ratio = Quick assets / Current liabilities

Quick assets = Current assets – Inventory – Prepaid expenses

$3,800,000 – $500,000 – 0 = 33,00,000

Quick ratio = 33,00,000 / 1908000 = 1.73 times

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