Question

1999 Income Statement ($ in millions) Net sales $1,384 Less: Cost of goods sold 605 Less: Depreciation 180 Earnings Before interest and taxes 599 Less: Interest paid 80 Taxable income 519 Less: Taxes 156 Net income $363 Addition to retained earnings $254 Dividends paid 109 Young, Inc. 1998 and 1999 Balance Sheet ($ in millions) 1998 1999 1998 1999 Cash $100 $121 Accounts payable $400 $350 Accounts rec. 350 425 Notes payable 390 370 Inventory 440 410 Total $790 $720 Total $890 $956 Long-term debt 500 550 Net fixed assets 1,556 1,704 Common stock 600 580 Retained earnings 556 810 Total assets $2,446 $2,660 Total liabilities $2,446 $2,660 What is the current ratio for Young in 1999? 1.13 1.21 1.23 1.33 1.47

Answer 1

1.33

Step-by-step explanation:

The formula to compute the current ratio is shown below:

`Current\ ratio = (Current\ assets )/(Current\ liabilities)`

`Current\ ratio = (\$956)/(\$720)`

= 1.33

The current assets equals to

= Cash + accounts receivable + inventory

= $121 + $425 + $410

= $956

And, the current liabilities equals to

= Accounts payable + notes payable

= $350 + $370

= $720

This ratio shows a relationship between current assets and the current liabilities. It is a liquidity ratio.