AP6-14A (Current and quick ratios) The following amounts were reported by Liquid Company in its most recent statement of financial position:

Cash $ 40,000

Accounts receivable (net) 130,000

Short-term investments 18,000

Inventory 390,000

Prepaid insurance 35,000

Property, plant, and equipment (net) 960,000

Accounts payable 85,000

Wages payable 37,000

Income tax payable 45,000

Sales tax payable 10,000

Notes payable (due within one year) 90,000

Bank loan payable (due in three years) 50,000

Required

Calculate the current ratio and quick ratio for Liquid Company. Based on a review of other companies in its industry, the management of Liquid Company thinks it should maintain a current ratio of 2.2 or more and a quick ratio of 0.9 or more. Its current and quick ratios at the end of the prior year were 2.1 and 0.8, respectively. How successful has the company been in achieving the desired results this year? How could the company improve its current position? What risks, if any, may be associated with the strategy you have suggested?