If a retail store has a current ratio of 2.5 and current assets of $195,000,the amount of working capital is:
A)$ 78,000
B)$380,000
C)$330,000
D)$117,000

Question

Quizplus · Accepted Answer

The current ratio is calculated by dividing current assets by current liabilities. However, we are not given the current liabilities in this scenario. We can use the formula for working capital to calculate the answer.

Working capital = Current Assets - Current Liabilities

We can rearrange this formula to solve for current liabilities:

Current Liabilities = Current Assets - Working Capital

We are given that the current ratio is 2.5, which means that for every $1 of current liabilities, there is $2.5 of current assets. We can use this information to solve for current liabilities:

Current Ratio = Current Assets / Current Liabilities
2.5 = $195,000 / Current Liabilities
Current Liabilities = $195,000 / 2.5
Current Liabilities = $78,000

Now that we know the current liabilities, we can use the formula for working capital to solve for the answer:

Working Capital = Current Assets - Current Liabilities
Working Capital = $195,000 - $78,000
Working Capital = $117,000

Therefore, the answer is D) $117,000.

If a Retail Store Has a Current Ratio of 2