Explain the purpose of the acid-test ratio

Question

Response to the following questions:

Q1.XYZ Company uses a periodic inventory system. The beginning balance of inventory and the purchases made by XYZ during the month of July are given below:

Date	Description	Units	Unit cost	Total cost
July 01	Beginning inventory	500	$20	$10,000
July 18	Inventory purchased	800	$24	$19,200
July 25	Inventory purchased	700	$26	$18,200
	Total	2,000		$47,400

The XYZ Company sold 1,400 units during the month of July.

Required: Compute inventory on 31st July and cost of goods sold for the month of July using FIFO inventory costing method.

Q2. ALPHA Company reported the following year-end information:  

Cash	$ 52,000
Short-term investments	12,000
Accounts receivable	54,000
Inventory	325,000
Prepaid expenses	17,500
Accounts payable	106,500
Other current payables	25,000

Instructions:

1- Explain the purpose of the acid-test ratio.

2- Calculate the acid-test ratio for ALPHA Company.

Q3. Maia's Bike Shop uses the periodic inventory system and had the following transactions during the month of May:  

May 3	Sold merchandise to a customer on credit for $600, terms 2/10, n/30.  The cost of the merchandise sold was $350.
May 4	Sold merchandise to a customer for cash of $425.  The cost of the merchandise was $250.
May 6	Sold merchandise to a customer on credit for $1,300, term 2/10, n/30.  The cost of the merchandise sold was $750.
May 8	The customer from May 3 returned merchandise with a selling price of $100.  The cost of merchandise returned was $55.
May 15	The customer from May 6 paid the full amount due, less any appropriate discounts earned.
May 31	The customer from May 3 paid the full amount due, less any appropriate discounts earned.

Instructions:

Prepare the required journal entries that Maia's Bike Shop must make to record these transactions. 

Q.4 What does FOB stand for? Differentiate between FOB shipping point (or FOB factory) and FOB destination?