Why prepaid expense are not considered in quick and cash ratio?
Homework Answers
Solution:
Quick ratio = quick assets ÷ current liabilities
Quick assets are the current assets which are converted into cash in short period of time.
Current assets include prepaid expense but it is not considered as a liquid asset like cash, short term investments, accounts receivables and other marketable securities which are converted into cash with in a short period of time.
So as per above explanation prepaid expenses are considered as illiquid asset and not considered for quick asset ratio.
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prepaid expenses = $50,000
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(prepaid expenses are $50,000) Problem 3 Calculate the following information: 1. Quick ratio 2. Accounts receivable...
(prepaid expenses are $50,000)
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prepaid expenses = $50,000
Problem 3 Calculate the following information: 1. Quick ratio 2. Accounts receivable turnover ratio 3. Net return on total assets 4. Total liabilities to total assets ratio 5. Times interest earned ratio 6. Return on sales 7. Return on equity Sales: $750,000 Cash: $50,000 Inventory: $150,000 Common Stock: $100,000 Accounts Payable: $100,000 Prepaid expenses: $50,000 Long term debt: $200,000 Land and Building: $500,000 Operating Income: $450,000 Taxes: $200,000 Accounts Receivable: $70,000 Retained Earnings: $400,000 Cost of...
(prepaid expenses are $50,000)
Problem 3 Calculate the following information: 1. Quick ratio 2. Accounts receivable turnover ratio 3. Net return on total assets 4. Total liabilities to total assets ratio 5. Times interest earned ratio 6. Return on sales 7. Return on equity Sales: $750,000 Cash: $50,000 Inventory: $150,000 Common Stock: $100,000 Accounts Payable: $100,000 Prepaid expenses: $50,000 Long term debt: $200,000 Land and Building: $500,000 Operating Income: $450,000 Taxes: $200,000 Accounts Receivable: $70,000 Retained Earnings: $400,000 Cost of...
7) Which of the following is considered to be a liability (2pts) O Prepaid Expense O Accrued Revenues O Investments Unearned Revenue
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