Draper Company's working capital is $12,000 and its current liabilities are $71,000. The company's current ratio is closest to:
A) 0.83
B) 1.17
C) 6.92
D) 0.17

Question

Quizplus · Accepted Answer

The current ratio is calculated by dividing current assets by current liabilities. Current assets are not given in the question, but we can use the formula: Current Ratio = Current Assets / Current Liabilities
Cross-multiplying the given values, we have:
Current Assets = (Current Ratio x Current Liabilities) = (x/1 x 71000) = 71000x
Working Capital = Current Assets - Current Liabilities = 71000x - 12000
We know that Working Capital = Current Assets - Current Liabilities
Therefore, 71000x - 12000 = Working Capital
71000x = Working Capital + 12000
x = (Working Capital + 12000)/71000
Plugging in the given values, we have:
x = (12000 + 12000)/71000 = 0.338
Therefore, the current ratio is approximately 1.17 (i.e. 0.338/1), which is closest to answer choice B.

Draper Company's Working Capital Is $12,000 and Its Current Liabilities