Mitchell Corporation has current assets of $1,600,000 million and current liabilities of $750,000.If they pay $350,000 of their accounts payable, what will their new current ratio be?
A)3.1:1
B)4.0:1
C)1.5:1
D)2.1:1

Question

Quizplus · Accepted Answer

The current ratio is a measure of a company's liquidity, or its ability to meet its short-term obligations. It is calculated by dividing current assets by current liabilities. In this case, Mitchell Corporation's current ratio is 1,600,000 / 750,000 = 2.13. If they pay $350,000 of their accounts payable, their current liabilities will decrease to $750,000 - $350,000 = $400,000. Their current ratio will then be 1,600,000 / $400,000 = 4.0.

Mitchell Corporation Has Current Assets of $1,600,000 Million and Current