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).
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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