Chapter 4

The quick assets are defined as:

Cash, short-term investments and current receivables

A company had: net sales of $82,000; cost of goods sold of $70,000; and other expenses of $2,000. Its gross margin ratio equals:

14.63% ($82,000 - $70,000)/$82,000 = 14.63%

J.C. Penny had net sales of $28,496 million, its cost of goods sold was $19,092 million and its net income was $997 million. Its gross margin ratio equals:

33% ($28,496 - $19,092)/$28,496 = 33%

The acid-test ratio:

Is also called the quick ratio

Liquidity problems are likely to exist when a company's acid-test ratio:

Is substantially lower than 1 to 1

The gross margin ratio:

Measures a merchandising firm's ability to earn a profit from the sale of inventory

Beginning inventory plus net cost of purchases is:

Merchandise available for sale

A company's cost of goods sold was $4,000. Determine net purchases and ending inventory given goods available for sale were $11,000 and beginning inventory was $5,000.

Net Purchases: $6,000; Ending Inventory: $7,000

The acid-test ratio differs from the current ratio in that:

Prepaid expenses and inventory are excluded from the calculation of the acid-test ratio