Answer :
Given the financial data for Stanford Company as of December 31, let's analyze the company's Quick Ratio step-by-step.
1. Calculate Current Assets:
Current assets include cash, accounts receivable, inventory, and prepaid insurance.
[tex]\[ \text{Current Assets} = \text{Cash} + \text{Accounts Receivable} + \text{Inventory} + \text{Prepaid Insurance} \][/tex]
Substituting the values:
[tex]\[ \text{Current Assets} = \$5,000 + \$15,000 + \$40,000 + \$3,000 = \$63,000 \][/tex]
2. Calculate Current Liabilities:
Current liabilities include accounts payable, notes payable in 5 months, and salary payable.
[tex]\[ \text{Current Liabilities} = \text{Accounts Payable} + \text{Notes Payable in 5 Months} + \text{Salary Payable} \][/tex]
Substituting the values:
[tex]\[ \text{Current Liabilities} = \$15,000 + \$12,500 + \$25,000 = \$52,500 \][/tex]
3. Calculate Quick Assets:
Quick assets exclude inventory and prepaid insurance from current assets.
[tex]\[ \text{Quick Assets} = \text{Current Assets} - \text{Inventory} - \text{Prepaid Insurance} \][/tex]
Substituting the values:
[tex]\[ \text{Quick Assets} = \$63,000 - \$40,000 - \$3,000 = \$20,000 \][/tex]
4. Calculate the Quick Ratio:
The quick ratio is the ratio of quick assets to current liabilities.
[tex]\[ \text{Quick Ratio} = \frac{\text{Quick Assets}}{\text{Current Liabilities}} \][/tex]
Substituting the values:
[tex]\[ \text{Quick Ratio} = \frac{\$20,000}{\$52,500} = 0.38 \][/tex]
The company's Quick Ratio is 0.38. Therefore, the correct answer is:
0.38
1. Calculate Current Assets:
Current assets include cash, accounts receivable, inventory, and prepaid insurance.
[tex]\[ \text{Current Assets} = \text{Cash} + \text{Accounts Receivable} + \text{Inventory} + \text{Prepaid Insurance} \][/tex]
Substituting the values:
[tex]\[ \text{Current Assets} = \$5,000 + \$15,000 + \$40,000 + \$3,000 = \$63,000 \][/tex]
2. Calculate Current Liabilities:
Current liabilities include accounts payable, notes payable in 5 months, and salary payable.
[tex]\[ \text{Current Liabilities} = \text{Accounts Payable} + \text{Notes Payable in 5 Months} + \text{Salary Payable} \][/tex]
Substituting the values:
[tex]\[ \text{Current Liabilities} = \$15,000 + \$12,500 + \$25,000 = \$52,500 \][/tex]
3. Calculate Quick Assets:
Quick assets exclude inventory and prepaid insurance from current assets.
[tex]\[ \text{Quick Assets} = \text{Current Assets} - \text{Inventory} - \text{Prepaid Insurance} \][/tex]
Substituting the values:
[tex]\[ \text{Quick Assets} = \$63,000 - \$40,000 - \$3,000 = \$20,000 \][/tex]
4. Calculate the Quick Ratio:
The quick ratio is the ratio of quick assets to current liabilities.
[tex]\[ \text{Quick Ratio} = \frac{\text{Quick Assets}}{\text{Current Liabilities}} \][/tex]
Substituting the values:
[tex]\[ \text{Quick Ratio} = \frac{\$20,000}{\$52,500} = 0.38 \][/tex]
The company's Quick Ratio is 0.38. Therefore, the correct answer is:
0.38
