Question

Use the following balance sheet and income statement to calculate the firm's current ratio (current assets/ current liabilities):

Income Statement Balance Sheet 255,000
Assets: 9000 Sales (all credit) 153,000
Cost of Goods Sold 45000
Cash 26000 Depreciation 3000
Accounts Receivable 19,500 Operating Expenses 9000
Inventories 49000 Interest Expense
Land 70000 Taxes 15,300
Other Fixed Assets
Liabilities & Owners' Equity
Accounts Payable 12000
Long Term Debt 53,400
Common Stock 2000
Paid in Capital 80000
Retained Earnings 26,100
a) 0.76
b) 4.5
c) 4.1
d) 7.8
e) 2.5

Answer 1

b. 4.5

Step-by-step explanation:

Given the above information, the formula for current ratio is current assets divided by current liabilities

Current assets = cash + accounts receivable + inventories

Current assets = $9,000 + $26,000 + $19,500

Current assets = $54,500

Current liabilities = Accounts payable

Current liabilities = $12,000.

Therefore,

Current ratio = $54,500 / $12,000

Current ratio = 4.54166

Current ratio = 4.5 approx.