Question

The financial statements for Lexington Service Company include the following items:

2017 2016
Cash 50,50043,000
Short-term Investments 28,00011,000
Net Accounts Receivable 56,00050,000
Merchandise Inventory 157,00043,000
Total Assets 531,000546,000
Accounts Payable 127,500124,000
Salaries Payable 23,00020,000
Long-term Note Payable 64,00056,000

Compute the current ratio for 2016. (Round answer to two decimal places.)

Answer 1

The current ratio for 2016 is 1.53.

Step-by-step explanation:

The current ratio is a financial ratio that measures a company's ability to pay off its short-term liabilities using its short-term assets. It is calculated by dividing the company's current assets by its current liabilities. In this case, the current assets for 2016 are the sum of cash, short-term investments, net accounts receivable, and merchandise inventory, which equals $157,000 + $43,000 + $50,000 + $56,000 = $306,000. The current liabilities for 2016 are the sum of accounts payable, salaries payable, and the long-term note payable, which equals $124,000 + $20,000 + $56,000 = $200,000.

The current ratio for 2016 is then calculated as follows:

Current Ratio = Current Assets / Current Liabilities

Current Ratio = $306,000 / $200,000

Current Ratio = 1.53 (rounded to two decimal places).