Question

Teague Company's working capital was $52,000 and total current liabilities were one-second of that amount. What was the current ratio?

a. 4
b. 3
c. 2
d. 1

Answer 1

The current ratio of Teague Company is calculated by dividing the current assets by current liabilities. The current liabilities are half the working capital of $52,000, leading to a calculation where the current assets equal $78,000 and the current liabilities are $26,000. The resulting current ratio is 3.

Step-by-step explanation:

The question revolves around calculating the current ratio for Teague Company using the provided financial information. Working capital is defined as current assets minus current liabilities. In this scenario, Teague Company's working capital is given as $52,000. Since the total current liabilities are one-half of the working capital, they amount to $52,000 / 2 = $26,000.

To find the current ratio, which is a liquidity ratio that measures a company's ability to pay short-term obligations, we divide the current assets by the current liabilities. We know that current assets are equal to working capital plus current liabilities. So current assets in this case would be $52,000 (working capital) + $26,000 (current liabilities) = $78,000. Now, to get the current ratio, we divide current assets ($78,000) by current liabilities ($26,000), which equals 3.

Therefore, the current ratio of Teague Company is 3, which corresponds to option b in the multiple-choice answers provided.

Answer 2

The current ratio of Teague Company, calculated from the given working capital and current liabilities, is 3, which is option b.

Step-by-step explanation:

The question pertains to calculating the current ratio, which is a liquidity ratio that measures a company's ability to pay short-term and long-term obligations. To find the current ratio, we use the formula: Current Ratio = Current Assets / Current Liabilities.

We are given that Teague Company's working capital (which is the difference between current assets and current liabilities) is $52,000 and that the total current liabilities are one-half of the working capital. This means the current liabilities are $52,000 / 2, which equals $26,000. Knowing that working capital is current assets minus current liabilities ($52,000 = Current Assets - $26,000), we can calculate the current assets as $52,000 + $26,000, which equals $78,000.

Now, to find the current ratio, we divide the current assets ($78,000) by the current liabilities ($26,000), resulting in a current ratio of 3. Therefore, the correct answer is:

b. 3