Calculate the current ratio given the following information: current liabilities = $55,000; sales = $250,000; cost of goods sold = $120,000; cash ratio = 0.91; accounts receivable turnover = 6.25;
Inventory turnover = 2.
A) 2.63
B) 2.73
C) 2.83
D) 2.93
E) 3.03

Question

Quizplus · Accepted Answer

Current assets can be calculated using the cash ratio, accounts receivable turnover, and inventory turnover:

Cash = Cash Ratio x Current Liabilities = 0.91 x 55000 = $50,050
Accounts Receivable = Annual Sales / Accounts Receivable Turnover = 250000 / 6.25 = $40,000
Inventory = Cost of Goods Sold / Inventory Turnover = 120000 / 2 = $60,000

Current Assets = Cash + Accounts Receivable + Inventory = 50,050 + 40,000 + 60,000 = $150,050

Current Ratio = Current Assets / Current Liabilities = 150,050 / 55,000 = 2.73.

Therefore, the best choice is B, with a current ratio of 2.73.

Calculate the Current Ratio Given the Following Information: Current Liabilities