Which of the following, if true, strengthens the case that Matheson’s

QUESTION

Which of the following, if true, strengthens the case that Matheson’s acid-test ratio will be above the standard of 1.0?

A) Matheson keeps a low inventory.
B) Matheson has high owners’ equity.
C) Matheson has high liabilities.
D) Matheson has a large amount of cash on hand.
E) Matheson has a high net income.

ANSWER

Answer: D
Explanation: D) Cash on hand contributes to a high acid-test ratio. Choices A, B, and E mention factors that are not considered in the acid-test ratio. Choice C: Current liabilities appear in the denominator of the acid-test ratio, so they would contribute to a low acid-test ratio.