Question 2

Step 1: Identify and sum Current Assets. Current Assets include Cash, Accounts Receivable, Inventory, and Prepaid Expenses. $Current Assets = Cash + Accounts Receivable + Inventory + Prepaid Expenses$ $Current Assets = Ksh. 1,200,000 + Ksh. 1,800,000 + Ksh. 2,000,000 + Ksh. 500,000$ $Current Assets = Ksh. 5,500,000$

Step 2: Identify and sum Current Liabilities. Current Liabilities include Accounts Payable, Notes Payable (due in 6 months), and Accrued Expenses. $Current Liabilities = Accounts Payable + Notes Payable + Accrued Expenses$ $Current Liabilities = Ksh. 1,500,000 + Ksh. 1,000,000 + Ksh. 800,000$ $Current Liabilities = Ksh. 3,300,000$

Step 3: Calculate the Current Ratio. The formula for the Current Ratio is: $Current Ratio = \frac{Current Assets}{Current Liabilities}$ $Current Ratio = \frac{Ksh. 5,500,000}{Ksh. 3,300,000}$ $Current Ratio \approx 1.67$ The current ratio is $\boxed{1.67:1}$.

Step 4: Calculate the Quick Ratio (Acid-Test Ratio). The formula for the Quick Ratio is: $Quick Ratio = \frac{Current Assets - Inventory}{Current Liabilities}$ $Quick Ratio = \frac{Ksh. 5,500,000 - Ksh. 2,000,000}{Ksh. 3,300,000}$ $Quick Ratio = \frac{Ksh. 3,500,000}{Ksh. 3,300,000}$ $Quick Ratio \approx 1.06$ The quick ratio is $\boxed{1.06:1}$.