Question

Cherry Tree Company has the following balance sheet information as of December 31, 2019Cash $10,000Marketable Securities $20,000Accounts Receivable $30,500Prepaid Expenses $2,000Inventory $34,000Property, Plant and Equipment (net of Accumulated Depreciation) $54,000Accounts Payable $45,000Long-term Bonds Payable $50,000Owner's Equity $55,500What is Cherry Tree Company's current ratio?

Answer 1

2.14 times

Step-by-step explanation:

The computation of the current ratio is shown below:

Current ratio = Current assets ÷ Current liabilities

where,

Current assets is

= Cash + marketable securities + account receivable + prepaid expense + inventory

= $10,000 + $20,000 + $30,500 + $2,000 + $34,000

= $96,500

And, the current liabilities is account payable i.e $45,000

So, the current ratio is

= $96,500 ÷ $45,000

= 2.14 times

We simply applied the above formula