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LIQUIDITY ANALYSIS: What is the company quick ratio (acid-test ratio)? (1) Cash $1.2M, marketable securities $800K, accounts receivable $2.4M, and current liabilities $3.5M (2) Current ratio is 1.71 with inventory of $1.6M and current liabilities of $3.5M

GMAT · 2021 · Data Insights
Question:
LIQUIDITY ANALYSIS: What is the company quick ratio (acid-test ratio)? (1) Cash $1.2M, marketable securities $800K, accounts receivable $2.4M, and current liabilities $3.5M (2) Current ratio is 1.71 with inventory of $1.6M and current liabilities of $3.5M

Options

(A) Statement (1) ALONE is sufficient, but statement (2) alone is not sufficient
(B) Statement (2) ALONE is sufficient, but statement (1) alone is not sufficient
(C) BOTH statements TOGETHER are sufficient, but NEITHER statement ALONE is sufficient
(D) EACH statement ALONE is sufficient
(E) Statements (1) and (2) TOGETHER are NOT sufficient
Answer: (D) EACH statement ALONE is sufficient

Explanation:
Statement (1): Quick ratio = (Cash + Securities + AR)/Current Liabilities = ($1.2M + $0.8M + $2.4M)/$3.5M = $4.4M/$3.5M = 1.26. Sufficient. Statement (2): Current assets = 1.71 × $3.5M = $5.985M. Quick assets = $5.985M - $1.6M = $4.385M. Quick ratio = $4.385M/$3.5M = 1.25. Sufficient.

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