Muggles Manufacturing has asked you to calculate the company's current ratio. All you have is the partial balance sheet below, the year's sales revenue, and two ratios also shown below. Using that information, calculate Muggles' current ratio. Sales = $3,000
Cost Ratio = 45%
Inventory Turnover (COGS/Inv) = 5.0
$\begin{array}{llll}\text { Asssets }&&\text { Liabilities \& Equity }\
\text { Cash } & ? ? ? ? ? & \text { Accounts Payable } & \$ 50 \
\text { AR } & \$ 40 & \text { Accruals } & ? ? ? ? ? ? \
\text { Inventory } & ? ? ? ? ? & \text { Longterm Debt } & \$ 380 \
\text { Net Fixed Assets } & \$ 500 & \text { Equity } & \$ 250\\text { Total Assets }&\$830&\text { Total Liabilities \& Equity }&??????
\end{array}$

Question

Quizplus · Accepted Answer

The current ratio is calculated as current assets divided by current liabilities. First, calculate COGS using the cost ratio: COGS = Sales * Cost Ratio = $3,000 * 0.45 = $1,350. Then, find Inventory using the Inventory Turnover: Inventory = COGS / Inventory Turnover = $1,350 / 5 = $270. Current Assets = AR + Inventory + Cash = $40 + $270 + Cash. Total Assets = $830, so Cash = $830 - $40 - $270 - $500 = $20. Current Liabilities = Accounts Payable + Accruals = $50 + Accruals. Total Liabilities & Equity = $830, so Accruals = $830 - $50 - $380 - $250 = $150. Current Liabilities = $50 + $150 = $200. Current Ratio = Current Assets / Current Liabilities = ($40 + $270 + $20) / $200 = $330 / $200 = 1.65.

Muggles Manufacturing Has Asked You to Calculate the Company's Current