To calculate the current ratio and the quick ratio, we will use the following formulas:
- Current Ratio = Current Assets / Current Liabilities
- Quick Ratio = (Current Assets - Inventory) / Current Liabilities
Step 1: Calculate Current Assets and Current Liabilities
Current Assets:
- Cash: $759,400
- Marketable Securities: $593,300
- Accounts Receivable (net): $601,700
- Inventory: $418,800
Total Current Assets = Cash + Marketable Securities + Accounts Receivable + Inventory \[ \text{Total Current Assets} = 759,400 + 593,300 + 601,700 + 418,800 = 2,373,200 \]
Current Liabilities:
- Accounts Payable: $698,000
Step 2: Calculate Current Ratio
Current Ratio = Current Assets / Current Liabilities \[ \text{Current Ratio} = \frac{2,373,200}{698,000} \approx 3.4 \]
Step 3: Calculate Quick Assets
Quick Assets = Current Assets - Inventory \[ \text{Quick Assets} = 2,373,200 - 418,800 = 1,954,400 \]
Step 4: Calculate Quick Ratio
Quick Ratio = Quick Assets / Current Liabilities \[ \text{Quick Ratio} = \frac{1,954,400}{698,000} \approx 2.8 \]
Final Answers
- a. Current ratio: 3.4
- b. Quick ratio: 2.8
Here’s how to fill in the blanks:
| Line Item Description | Ratio | |-----------------------|-------| | a. Current ratio | 3.4 | | b. Quick ratio | 2.8 |
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