1. Use the following information on current assets and current liabilities to compute and interpret the acid test ratio. Explain what the acid-test ratio of a company measures.
Cash | $1,200 | Prepaid expenses | $ 600 |
Accounts receivable | 2,700 | Accounts payable | 4,750 |
Inventory | 5,000 | Other current liabilities | 950 |
2. Identify similarities and differences between the acid-test ratio and the current ratio. Compare and describe how the two ratios reflect a company’s ability to meet its current obligations.
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