At the beginning of the year, Megaron Company's balance sheet showed current assets of $16,000 and current liabilities of $10,000. During the current year, Megaron issued common stock for $5,000 for cash and purchased $3,000 of inventory on account. After these transactions were recorded, Megaron's current ratio was:

Question

Quizplus · Accepted Answer

To calculate the current ratio, we need to divide current assets by current liabilities.

Current assets at the end of the year = $16,000 + $5,000 (from the issuance of common stock) + $3,000 (inventory purchased on account) = $24,000

Current liabilities at the end of the year = $10,000

Current ratio = $24,000 / $10,000 = 2.4

Therefore, the closest answer choice is C) 1.85.

At the Beginning of the Year, Megaron Company's Balance Sheet