21.A common rule of thumb is that a company's acid-test ratio should have a value near or higher than 1 to conclude that a company is unlikely to face near-term liquidity problems.
22.Successful use of a just-in-time inventory system can narrow the gap between the acid-test and the current ratio.
23.A company's quick assets are $147,000 and its current liabilities are $143,000. This company's acid-test ratio is 1.03.
Acid-Test Ratio = Quick Assets/Current Liabilities
Acid-Test Ratio - $147,000/$143,000 = 1.03
24.A company's current ratio is 1.2 and its quick ratio is 0.25. This company is probably an excellent credit risk because the ratios reveal no indication of liquidity problems.
25.The gross margin ratio is defined as gross margin divided by net sales.
26.The profit margin ratio is the same as the gross profit ratio.
27.A company had net sales of $340,500, its cost of goods sold was $257,000, and its net income was $13,750. The company's gross margin ratio equals 24.5%.
Gross Margin Ratio = (Sales - Cost of Goods Sold)/Sales
Gross Margin Ratio = ($340,500 - $257,000)/$340,500 = 24.5%
28.The Merchandise Inventory account balance at the beginning of the current period is equal to the amount of ending Merchandise Inventory from the previous period.
29.Credit terms for a purchase include the amounts and timing of payments from a buyer to a seller.
30.Purchase returns refer to merchandise a buyer acquires but then returns to the seller.