By NEAS - 7/8/2024 4:09:19 PM
FA Module 4 Current ratio & quick ratio practice exam questions
covering balance sheet entries, non-current liabilities, shareholders’ equity, credit sales & purchases, current liabilities, current assets, inventory, accounts payable, accounts receivable,
quick assets
(The attached PDF file has better formatting.)
On December 30, a firm’s balance sheet shows
● non-current liabilities = 246
● shareholders’ equity = 364
● total assets = 732
On December 30, the firm’s current ratio = 2.69 and its quick ratio = 2.26
On December 31, the firm sells goods on credit (30 days net) for 160 at a gross profit margin of 44%, and it buys inventory for 80 on credit (60 days net).
No other accounting entries occur on December 31.
Question 4.2: Current liabilities
What are current liabilities on December 30?
Answer 4.2: 732 – 246 – 364 = 122
(total assets = current liabilities + non-current liabilities + shareholders’ equity
➾ current liabilities = total assets – non-current liabilities – shareholders’ equity)
Question 4.3: Current assets
What are current assets on December 30?
Answer 4.3: 122 × 2.69 = 328.18
(current ratio = current assets / current liabilities
➾ current assets = current liabilities × current ratio)
Question 4.4: Quick assets
What are quick assets on December 30?
Answer 4.4: 122 × 2.26 = 275.72
(quick ratio = quick assets / current liabilities
➾ quick assets = current liabilities × quick ratio)
Question 4.5: Inventory
What is inventory on December 30?
Answer 4.5: 328.18 – 275.72 = 52.46
(quick assets = current assets – inventory
➾ inventory = current assets – quick assets)
Question 4.6: Current liabilities
What are current liabilities on December 31?
Answer 4.6: 122 + 80 = 202
(Accounts payable from purchase of inventory is a contra-liability, so add change in accounts payable from purchase of inventory to the contra-liabilities on December 30.)
Question 4.7: Inventory
What is the change in inventory on December 31?
Answer 4.7: 80 – 160 × (1 – 44%) = (9.60)
(Add inventory bought of 80 and subtract inventory sold, which is goods sold of 160 × (1 – gross profit margin of 44%). )
Question 4.8: Current assets
What are current assets on December 31?
Answer 4.8: 328.18 + 160 – 9.60 = 478.58
(Add change in accounts receivable of 160 and change in inventory of -9.60)
Question 4.9: Inventory
What is inventory on December 31?
Answer 4.9: 52.46 – 9.60 = 42.86
(Add change in inventory of -9.60)
Question 4.10: Quick assets
What are quick assets on December 31?
Answer 4.10: 478.58 – 42.86 = 435.72
(quick assets = current assets – inventory)
Question 4.11: Current ratio
What is the current ratio on December 31?
Answer 4.11: 478.58 / 202 = 2.369
(current ratio = current assets / current liabilities)
Question 4.12: Quick ratio
What is the quick ratio on December 31?
Answer 4.12: 435.72 / 202 = 2.157
(quick ratio = quick assets / current liabilities)
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