Gmeiner Co. had the following current assets and liabilities on December 31 of two recent years: Current YearPrevious Year Current assets: Cash$683,000 $649,000 Accounts receivable605,000 305,000 Inventory374,000 258,000 Total current assets$1,662,000 $1,212,000 Current liabilities: Current portion of long-term debt$90,000 $80,000 Accounts payable179,000 159,000 Accrued and other current liabilities291,000 291,000 Total current liabilities$560,000 $530,000 a. Determine the quick ratio for December 31 of both years. If required, round your answers to one decimal place. Quick Ratio Previous year: Current year: b. How did the quick ratio change between the two balance sheet dates?

a. Previous year Quick Ratio is 1.8, while Current year Quick Ratio is 2.3.

b. The quick ratio has increased by 0.5 in abos0lute term which indicates an increase of 27.8% in percentage term between the two balance sheet dates.

Explanation:

a. Determine the quick ratio for December 31 of both years. If required, round your answers to one decimal place.

The quick ratio is a ratio that indicates the ability of company to employ its quick, most liquid or near cash assets to meets its short-term or current liabilities. The ratio is also known as the acid-test test ratio and can be estimated using the following formula:

Quick ratio = (Total Current assets - Inventory) / Total current liabilities

Using the formula above, we have:

Previous year Quick Ratio = ($1,212,000 - $258,000) / $530,000 = 1.8

Current year Quick Ratio = ($1,662,000 - $374,000) / $560,000 = 2.3

b. How did the quick ratio change between the two balance sheet dates?

This can be determined both in absolute term and in percentage term as follows:

Absolute change = Current year Quick Ratio - Previous year Quick Ratio = 2.3 - 1.8 = 0.5 increase

Percentage change = (Current year Quick Ratio - Previous year Quick Ratio) / Previous year Quick Ratio = [(2.3 - 1.8) / 1.8] * 100 = 27.8%

From the above, the quick ratio has increased by 0.5 in abos0lute term which indicates an increase of 27.8% in percentage term between the two balance sheet dates.

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