Question

Assume that the current ratio for Arch Company is 2.5, its acid-test ratio is 2.0, and its working capital is $390,000. Answer each of the following questions independently, always referring to the original information. Required: a. How much does the firm have in current liabilities? (Round your final answer to nearest whole dollar.)

Answer 1

Current liabilities = 260,000

Step-by-step explanation:

Given:

Current ratio = 2.5

Working capital = $390,000

Find:

Current liabilities

Computation:

Working capital = Current assets - Current liabilities

$390,000 = Current assets - Current liabilities

Current assets = Current liabilities + $390,000

Current ratio = Current assets / Current liabilities

2.5 = [Current liabilities + $390,000] / Current liabilities

2.5 Current liabilities = Current liabilities + $390,000

Current liabilities = 260,000