Question

Use the following data to calculate the current ratio.

Skysong, Inc. Balance Sheet December 31, 2017

Cash $65500 Accounts payable $131500
Accounts receivable 93000 Salaries and wages payable 17500
Inventory 148000 Mortgage payable 173000
Prepaid insurance 87500 Total liabilities $322000
Stock Investments 194500 Land 185500
Buildings $219500 Common stock $216500

Less: Accumulated depreciation (72500) 147000 Retained earnings 483500
Trademarks 101000 Total stockholders' equity $700000
Total assets $1022000 Total liabilities and stockholders' equity $1022000


a. 2 : 1
b. 2.64 : 1
c. 2 : 1
d. 3 : 1

Answer 1

b. 2.64 : 1

Step-by-step explanation:

Current ratio = Current assets/Current liabilities

Current assets = Cash + Account Receivables + Inventory + Prepaid insurance

Current assets = $65500 + $93000 + $148000 + $87500

Current assets = $394,000

Current liabilities = Accounts payable + Salaries and wages payable

Current liabilities = $131500 + $17500

Current liabilities = $149,000

Hence, Current ratio = $394,000/$149,000

Current ratio = 2.644295

Current ratio = 2.64 : 1