Question

Elli Company reports the following year-end balance sheet data. The company's current ratio equals:

a) Current assets divided by current liabilities
b) Total assets divided by total liabilities
c) Net income divided by total assets
d) Long-term liabilities divided by current assets

Answer 1

The current ratio is calculated by dividing current assets by current liabilities. In this case, the current ratio of Elli Company is 0.3939.

Step-by-step explanation:

The current ratio is a measure of a company's ability to pay its short-term liabilities using its short-term assets. It is calculated by dividing current assets by current liabilities.

Current ratio = Current assets / Current liabilities

In this case, the current assets are the reserves, bonds, and loans, which have a total value of 30 + 50 + 50 = 130. The current liabilities are the deposits and equity, which have a total value of 300 + 30 = 330.

Therefore, the current ratio of Elli Company is: 130 / 330 = 0.3939 (rounded to four decimal places).