Question

Choate Corporation reported the following on its year-end December 31, 2022 balance sheet: Cash and marketable securities of $55,000, notes payable of $100,000 due March 31, 2023, notes payable of $125,000 due January 31, 2024, net fixed assets of $600,000, accrued 4 expenses of $53,000, accounts receivable of $325,000, inventory of $112,000, and accounts payable of $61,000. What was Choate’s current ratio?

a. 2.30
b. 3.22
c. 5.10
d. 1.45
e. 1.78

Answer 1

Choate Corporation's current ratio is calculated by dividing its current assets ($492,000) by its current liabilities ($153,000), which equals a current ratio of 3.22.

Step-by-step explanation:

The current ratio of Choate Corporation is calculated by dividing current assets by current liabilities. The current assets include cash and marketable securities, accounts receivable, and inventory, which total $55,000 + $325,000 + $112,000 = $492,000. Current liabilities consist of notes payable due within a year and accrued expenses, summing up to $100,000 + $53,000 = $153,000. Therefore, the current ratio is = $492,000 / $153,000 = 3.22.