Question

The condensed balance sheet and income statement for Marjoram Company are presented below.

Marjoram Company
Balance Sheet
At December 31, 2009.
Cash $ 19,000
Temporary investments in marketable 35,000
securities
Accounts receivable (net). 48,400
Merchandise inventory 70,600
Property, plant, and equipment (net) 250,000
Intangible assets 12,400
Total assets $435.400
Current liabilities $108,400
11% Bonds payable, long-term 100,000
Paid-in capital 70,000
Retained earnings 157,000
Total liabilities and equity $435,400
Marjoram Company
Income Statement
For the Year ended December 31, 2009
Sales $704,000
Cost of goods sold 422,400
Gross profit $281,600
Operating expenses 166.200
Operating income $115,400
Interest expense 11,000
Income before income taxes $104,400
Income taxes 31.320
Net income $ 73,080
1.Compute the current ratio for Marjoram Company.

Answer 1

To calculate Marjoram Company's current ratio, total current assets ($173,000) are divided by total current liabilities ($108,400), resulting in a current ratio of approximately 1.6. This indicates Marjoram has $1.60 in current assets for every $1 in current liabilities.

Step-by-step explanation:

The student is asking how to compute the current ratio for Marjoram Company using the condensed balance sheet provided. The current ratio is a liquidity ratio that measures a company's ability to pay short-term obligations or those due within one year. To calculate the current ratio, you divide the company's current assets by its current liabilities.

From the balance sheet given, Marjoram Company's current assets include:

• Cash: $19,000
• Temporary investments in marketable securities: $35,000
• Accounts receivable (net): $48,400
• Merchandise inventory: $70,600

Summing up these amounts, the total current assets equal $173,000. The current liabilities are $108,400.

Therefore, the current ratio is calculated as follows:

Current Ratio = Total Current Assets / Total Current Liabilities

Current Ratio = $173,000 / $108,40

Current Ratio = 1.596, or approximately 1.6 when rounded to one decimal place.

A current ratio of 1.6 indicates that Marjoram Company has $1.60 in current assets for every $1 of current liabilities.