Freiman Corporation's most recent balance sheet and income statement appear below:
Income Statement
For the Year Ended December 31, Year 2
(in thousands of dollars)
$\begin{array}{lr}
\text { Sales (all on account)}&\$ 1,310 \
\text {Cost of goods sold. }&780 \
\text {Gross margin. }&530 \
\text {Selling and administrative expense }&359 \
\text {Net operating income }&171 \
\text {Interest expense }& 35 \
\text {Net income before taxes }&136 \
\text { income taxes (30\%)}& 41 \
\text {Net income }& 95
\end{array}$
-The current ratio at the end of Year 2 is closest to:
A) 0.45
B) 1.93
C) 0.44
D) 1.04

Question

Freiman Corporation's most recent balance sheet and income statement appear below:
  Income Statement
For the Year Ended December 31, Year 2
(in thousands of dollars)
$\begin{array}{lr}
\text { Sales (all on account)}&\$ 1,310 \
\text {Cost of goods sold. }&780 \
\text {Gross margin. }&530 \
\text {Selling and administrative expense }&359 \
\text {Net operating income }&171 \
\text {Interest expense  }& 35 \
\text {Net income before taxes }&136 \
\text { income taxes (30\%)}& 41 \
\text {Net income }& 95
\end{array}$
-The current ratio at the end of Year 2 is closest to:
A) 0.45 
B) 1.93 
C) 0.44 
D) 1.04

Quizplus · Accepted Answer

The current ratio is calculated as Current Assets divided by Current Liabilities. The choice closest to a typical current ratio that indicates a company has more current assets than current liabilities (but not excessively so) is 1.93. This suggests the company can comfortably cover its short-term obligations, a common financial health indicator.

Freiman Corporation's Most Recent Balance Sheet and Income Statement Appear