Question

acg2071 managerial accounting section 26 instructor: petty requirement 1a. compute the acid test ratio for both companies for the current year begin by selecting the formula to compute the acid test ratio acid - test ratio = (cash + short - term investments + accounts receivable, net) ÷ total current liabilities now, compute the acid test ratio for both companies. (round your answers to two decimal places, x.xx ) electricity corp zone, inc. acid test ratio balance sheet and market price data electricity corp. zone current assets cash $ 28,000 $ 15,000 short - term investments 35,000 12,000 accounts receivable, net 37,000 41,000 merchandise inventory 61,000 101,000 prepaid expenses 22,000 10,000 total current assets $ 183,000 $ 179,000 total assets $ 260,000 $ 332,000 total current liabilities 103,000 98,000 total liabilities 103,000 132,000 common stock $1 par (11,000 shares) 11,000 $1 par (21,000 shares) 21,000 total stockholders equity 157,000 200,000 income statement data selected income statement data for the current year electricity corp. zone net sales revenue (all on credit) $ 425,000 $ 400,000 cost of goods sold 200,000 280,000 interest expense 0 23,000 net income 56,000 91,000 print done

Explanation:

Step1: Calculate acid - test assets for Electricity Corp

The acid - test assets are Cash + Short - term investments + Accounts receivable, net. For Electricity Corp, Cash = $28,000, Short - term investments = $35,000, Accounts receivable, net = $37,000. So, acid - test assets = 28000+35000 + 37000=$100,000. Total current liabilities for Electricity Corp is $103,000.
The acid - test ratio formula is $\frac{\text{Cash}+\text{Short - term investments}+\text{Accounts receivable, net}}{\text{Total current liabilities}}$. So, acid - test ratio for Electricity Corp=$\frac{100000}{103000}\approx0.97$.

Step2: Calculate acid - test assets for Zone, Inc

For Zone, Inc, Cash = $15,000, Short - term investments = $12,000, Accounts receivable, net = $41,000. So, acid - test assets = 15000 + 12000+41000=$68,000. Total current liabilities for Zone, Inc is $98,000.
Using the acid - test ratio formula, acid - test ratio for Zone, Inc=$\frac{68000}{98000}\approx0.69$.

Answer:

Electricity Corp: 0.97
Zone, Inc: 0.69