Calculate the current ratio given the following information: current liabilities = $40,000; sales = $90,000; cost of goods sold = $32,000; cash ratio = 1.10; accounts receivable turnover = 5; inventory turnover = 3.
A) 1.60
B) 1.70
C) 1.80
D) 1.90
E) 2.00

Question

Quizplus · Accepted Answer

The current ratio is calculated as current assets divided by current liabilities. To find current assets, we need to determine the components: cash, accounts receivable, and inventory. Using the cash ratio (cash/current liabilities = 1.10), cash is $44,000. Accounts receivable turnover (sales/accounts receivable = 5) gives accounts receivable as $18,000. Inventory turnover (cost of goods sold/inventory = 3) gives inventory as $10,667. Total current assets = $44,000 + $18,000 + $10,667 = $72,667. Current ratio = $72,667 / $40,000 = 1.82, which rounds to 1.80.

Calculate the Current Ratio Given the Following Information: Current Liabilities