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

Current assets = cash + accounts receivable + inventory

From the given information, we can get:

Cash = Cash ratio * Current liabilities = 1.10 * $40,000 = $44,000

Accounts receivable = Sales / Accounts receivable turnover = $90,000 / 5 = $18,000

Inventory = Cost of goods sold / Inventory turnover = $32,000 / 3 = $10,666.67

Therefore, current assets = $44,000 + $18,000 + $10,666.67 = $72,666.67

Current ratio = Current assets / Current liabilities = $72,666.67 / $40,000 = 1.82, which is closest to choice C (1.80).

Calculate the Current Ratio Given the Following Information: Current Liabilities