Teel Company's working capital was $40,000 and total current liabilities were 1/4 of that amount. What was the current (working capital) ratio?

Question

Quizplus · Accepted Answer

Current Ratio = Current Assets / Current Liabilities
Given, Working Capital = Current Assets - Current Liabilities
We know, Current Liabilities = (1/4) Working Capital
Therefore, Current Assets = Working Capital + Current Liabilities = Working Capital + (1/4) Working Capital = (5/4) Working Capital
Putting the values in the formula of current ratio, we get:
Current Ratio = (5/4) Working Capital / (1/4) Working Capital
Current Ratio = 5
Hence, the current ratio is 5 to 1. Option C is correct.

Teel Company's Working Capital Was $40,000 and Total Current Liabilities