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w-Exam 2 Extra Credit (1) KLM Corporation's quick assets are 5,920,000 its current assets are 11,700,000 and its current liabilities are 8,000,000 Its acid-test ratio equals Multiple Choice 0.51 0.68

Question

w-Exam 2 Extra Credit (1)
KLM Corporation's quick assets are 5,920,000 its current assets are 11,700,000 and its current liabilities are 8,000,000 Its acid-test ratio
equals
Multiple Choice
0.51
0.68

w-Exam 2 Extra Credit (1) KLM Corporation's quick assets are 5,920,000 its current assets are 11,700,000 and its current liabilities are 8,000,000 Its acid-test ratio equals Multiple Choice 0.51 0.68

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AdrianVeteran · Tutor for 11 years

Answer

B. 0.74

Explain

The acid-test ratio or quick ratio is a kind of liquidity ratio that measures how a company can pay off its current liabilities with its quick assets (usually cash, marketable securities and accounts receivable). Quick Assets do not include inventory and prepaid expenses as they are hard to convert into cash on very short notice. We can calculate the acid-test ratio by using the formula: <br />Quick assets / Current liabilities<br />Given the following:<br />Quick Assets = $5,920,000 <br />Current Assets =$ 11,700,000 <br />Current Liabilities = $8,000,000<br />We substitute the values into our formula as follows:$\frac{5,920,000}{8,000,000}$
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