Quick ratio is defined as (Cash + Marketable securities + Accounts receivable) divided by current liabilities. If cash $50k, AR $150k, current liabilities $180k, what is the quick ratio?

Quick ratio is defined as (Cash + Marketable securities + Accounts receivable) divided by current liabilities. If cash $50k, AR $150k, current liabilities $180k, what is the quick ratio?

• A. 0.80x
• B. 1.25x
• C. 1.50x
• D. 1.11x

Answer: (D)

This question tests instant liquidity by using the quick ratio, which compares the most liquid assets—cash, marketable securities, and accounts receivable—to current liabilities. Here, quick assets are cash plus accounts receivable (no marketable securities are provided): 50,000 + 150,000 = 200,000. Current liabilities are 180,000. Divide: 200,000 / 180,000 = 1.111..., which rounds to 1.11x. So the quick ratio is 1.11x. A ratio above 1 indicates the firm can cover its current liabilities with its most liquid assets. If marketable securities were present, they would be added to quick assets; inventory is not included in the quick ratio.

This question tests instant liquidity by using the quick ratio, which compares the most liquid assets—cash, marketable securities, and accounts receivable—to current liabilities. Here, quick assets are cash plus accounts receivable (no marketable securities are provided): 50,000 + 150,000 = 200,000. Current liabilities are 180,000. Divide: 200,000 / 180,000 = 1.111..., which rounds to 1.11x. So the quick ratio is 1.11x. A ratio above 1 indicates the firm can cover its current liabilities with its most liquid assets. If marketable securities were present, they would be added to quick assets; inventory is not included in the quick ratio.