Question

The following information pertains to Blue Flower Company. Assume that all balance sheet amounts represent both average and ending balance figures. Assume that all sales were on credit.

Assets:

Cash and short-term investments $45,000
Accounts receivable (net) 30,000
Inventory 25,000
Property, plant and equipment 210,000
Total Assets $310,000
Liabilities and Stockholders' Equity Current liabilities $60,000
Long-term liabilities 95,000
Stockholders' equity—common 155,000
Total Liabilities and Stockholders' Equity $310,000

Income Statement
Sales revenue $121,000
Cost of goods sold 66,000
Gross margin 55,000
Operating expenses 30,000
Net income $25,000
Number of shares of common stock 6,000
Market price of common stock $20
Dividends per share on common stock 0.50
Cash provided by operations $40,000

What is the current ratio for this company?

a. 1.25
b. 1.50
c. 0.67
d. 1.00

Answer 1

Blue Flower Company

Current Ratio = Current Assets/Current Liabilities

= $100,000/$60,000

= 1.67 : 1

This ratio implies that Blue Flower Company can pay its current or short-term liabilities 1.67 times, using its current assets, made up of cash, receivables, and inventory, including short-term investments.

Step-by-step explanation:

a) Data and Calculation:

Cash and short-term investments $45,000

Accounts receivable (net) 30,000

Inventory 25,000

Total current assets $100,000

Current liabilities = $60,000

b) Blue Flower's Current Ratio is a financial measure of the company's ability to settle maturing current liabilities (obligations) with its current assets without resorting to sale of long-term assets.