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What is the acid-test ratio? Use the attached financial data to calculate the ratios for 2021. Round to the nearest decimal.

Financial Data for American Eagle Outfitters (AEO)
\begin{tabular}{lll}
& \underline{2021} & \underline{2020} \\
Revenues & & \\
Cost of Sales & [tex]$\$[/tex]5,011[tex]$ & $[/tex]\[tex]$3,759$[/tex] \\
Total Operating Expenses & [tex]$\$[/tex]3,019[tex]$ & $[/tex]\[tex]$2,611$[/tex] \\
Interest Expense & [tex]$\$[/tex]1,222[tex]$ & $[/tex]\[tex]$977.3$[/tex] \\
Income Tax Expense & [tex]$\$[/tex]34.6[tex]$ & $[/tex]\[tex]$24.6$[/tex] \\
& [tex]$\$[/tex]139.3[tex]$ & $[/tex]\[tex]$83.0$[/tex] \\
Cash + Equivalents & [tex]$\$[/tex]434.8[tex]$ & $[/tex]\[tex]$850.5$[/tex] \\
A/R & [tex]$\$[/tex]286.7[tex]$ & $[/tex]\[tex]$146.1$[/tex] \\
Inventories & [tex]$\$[/tex]553.5[tex]$ & $[/tex]\[tex]$405.4$[/tex] \\
Prepaid Expenses & [tex]$\$[/tex]122[tex]$ & $[/tex]\[tex]$121$[/tex] \\
Total Current Assets & [tex]$\$[/tex]1,397[tex]$ & $[/tex]\[tex]$1,523$[/tex] \\
Total Assets & [tex]$\$[/tex]3,787[tex]$ & $[/tex]\[tex]$3,435$[/tex] \\
& & \\
A/P & [tex]$\$[/tex]231.8[tex]$ & $[/tex]\[tex]$255.9$[/tex] \\
Total Current Liabilities & [tex]$\$[/tex]842.9[tex]$ & $[/tex]\[tex]$858.5$[/tex] \\
Long-term Debt & [tex]$\$[/tex]341.0[tex]$ & $[/tex]\[tex]$325.3$[/tex]
\end{tabular}

Select one:
A. 79.976



Answer :

GinnyAnswer
Let's go through the steps to calculate the acid-test ratio for American Eagle Outfitters (AEO) for 2021, using the provided financial data. The acid-test ratio formula is given by:

[tex]\[ \text{Acid-Test Ratio} = \frac{\text{Cash Equivalents} + \text{Accounts Receivable}}{\text{Current Liabilities}} \][/tex]

We have the following data for 2021:
- Cash Equivalents: [tex]\( \$434.8 \)[/tex]
- Accounts Receivable: [tex]\( \$286.7 \)[/tex]
- Current Liabilities: [tex]\( \$842.9 \)[/tex]

Step-by-step calculation:

1. Add Cash Equivalents and Accounts Receivable:
[tex]\[ \text{Cash Equivalents} + \text{Accounts Receivable} = 434.8 + 286.7 = 721.5 \][/tex]

2. Divide the sum by Current Liabilities:
[tex]\[ \frac{721.5}{842.9} \approx 0.8559734250800807 \][/tex]

3. Round the result to the nearest decimal:
[tex]\[ 0.8559734250800807 \approx 0.9 \][/tex]

Therefore, the acid-test ratio for American Eagle Outfitters (AEO) for 2021 is approximately 0.9.