ACC 205 Week 5 Exercise 1 Liquidity Ratios

1. Liquidity Ratios.Edison, Stagg, and Thornton have the following financial information at the close of business on July 10:

Edison Stagg Thornton

Cash $6,000 $5,000 $4,000

Short-term investments 3,000 2,500 2,000

Accounts receivable 2,000 2,500 3,000

Inventory 1,000 2,500 4,000

Prepaid expenses 800 800 800

Accounts payable 200 200 200

Notes payable: short-term 3,100 3,100 3,100

Accrued payables 300 300 300

Long-term liabilities 3,800 3,800 3,800

Instructions

a. Compute the current and quick ratios for each of the three companies. (Round calculations to two

decimal places.) Which firm is the most liquid? Why?