PE 11-8B Quick ratio

Tappert Company reported the following current assets and liabilities for December 31, 2012 and 2011:


Dec. 31, 2012 Dec. 31, 2011 Cash $  990 $  860 Temporary investments 1,910 1,500 Accounts receivable 1,600 1,280 Inventory 2,000 1,400 Accounts payable 3,000 2,800 



a. Compute the quick ratio for December 31, 2012 and 2011.
b. Interpret the company’s quick ratio. Is the quick ratio improving or declining?

Answer:
a.
December 31, 2012
Quick Ratio = Quick Assets ÷ Current Liabilities  
Quick Ratio = ($990 + $1,910 + $1,600) ÷ $3,000
Quick Ratio = 1.5  

December 31, 2011
Quick Ratio = Quick Assets ÷ Current Liabilities  
Quick Ratio = ($860 + $1,500 + $1,280) ÷ $2,800
Quick Ratio = 1.3

b. The quick ratio of Tappert Company has improved from 1.3 in 2011 to 1.5 in 2012. This increase is the result of a large increase in the three types of quick assets (cash, short-term investments, and accounts receivable) compared to a relatively smaller increase in the current liability, accounts payable.




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