The Plaza Company has working capital of $540,000 and a current ratio of 3 to 1.The amount of current assets is:
A)$405,000.
B)$540,000.
C)$810,000.
D)$270,000.

Question

Quizplus · Accepted Answer

The current ratio is calculated by dividing current assets by current liabilities.

Current Ratio = Current Assets / Current Liabilities

Given Current Ratio = 3, and Working Capital = $540,000

We know that Working Capital = Current Assets - Current Liabilities

$540,000 = Current Assets - Current Liabilities

Let's assume Current Liabilities = x

Then Current Assets = x + $540,000

Now, we can substitute this value of Current Assets in the current ratio equation:

3 = (x + $540,000) / x

3x = x + $540,000

2x = $540,000

x = $270,000

Therefore, Current Liabilities = $270,000

And Current Assets = (3 * Current Liabilities) = (3 * $270,000) = $810,000

Hence, the amount of current assets is $810,000, which is option C.

The Plaza Company Has Working Capital of $540,000 and a Current