Question

Blossom Electronics has a quick ratio of 1.10, current liabilities of $5,316,000, and inventories of $4,344,000. What is the firm’s current ratio?

a) 1.50
b) 1.30
c) 1.10
d) 0.90

Answer 1

Find the current ratio for Blossom Electronics, first calculate the quick assets by multiplying the quick ratio by current liabilities, then add inventories, and finally divide by current liabilities. The calculated current ratio was approximately 1.92, which is not one of the provided options, suggesting a possible error in the question or options.

Step-by-step explanation:

The question asks us to calculate the current ratio of Blossom Electronics given its quick ratio, current liabilities, and inventories. The quick ratio, which is given as 1.10, is calculated by subtracting inventories from current assets and then dividing by current liabilities. To find the current ratio, we can add inventories back to the numerator of the quick ratio formula.

To compute the current ratio:

1. First, multiply the quick ratio (1.10) by the current liabilities ($5,316,000) to get the quick assets (current assets minus inventories).
   
2. Then, add the inventories ($4,344,000) to the quick assets.
   
3. Divide the sum by the current liabilities to get the current ratio.

The calculation will be as follows:

Quick Assets = Quick Ratio × Current Liabilities = 1.10 × $5,316,000 = $5,847,600

Current Assets = Quick Assets + Inventories = $5,847,600 + $4,344,000 = $10,191,600

Current Ratio = Current Assets ⁄ Current Liabilities = $10,191,600 ⁄ $5,316,000 ≈ 1.92

The current ratio is not explicitly one of the provided options (a) 1.50, (b) 1.30, (c) 1.10 or (d) 0.90. Therefore, it seems there might be an error either in the question or the options provided since the calculated current ratio is approximately 1.92.