SOLUTION: The acid test ratio of a business is the ratio of its liquid assets-cash and securities plus accounts receivable- to its current liabilities. The minimum acid test ratio for a fin
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Question 155859This question is from textbook
: The acid test ratio of a business is the ratio of its liquid assets-cash and securities plus accounts receivable- to its current liabilities. The minimum acid test ratio for a financially healthy company is around 1.0, but the standard varies somewhat from industry to industry, If a company has 450k in cash and securities and has 398,000 in current liabilities how much does it need to be carrying as accounts receivables in order to keep its acid test ratio at or above 1.3? This question is from textbook
You can put this solution on YOUR website! Let the required accounts-receivable be x.
Form the "Acid test" ratio by adding the liquid assets ($450,000) to the accounts-receivable (x) and dividing by the current liabilities ($398,000), and this is to be equal-to-or-greater-than 1.3
Write the inequality: Solve for x. Multiply both sides by 398000 Simplify. Subtract 450000 from both sides.
The company needs to be carrying at least $67,400 in accounts-receivable to keep its acid test ratio at or above 1.3
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