Question

Use the following data to calculate the current ratio. Koonce Office Supplies Balance Sheet December 31, 2014 Cash Accounts receivable Inventory Prepaid insurance Stock investments Land Buildings $140,000 $20,000 $160,000 $320,000 $130,000 Accounts payable $100,000 Salaries and wages payable $110,000 Mortgage payable $60,000 Total liabilities $170,000 $180,000 $210,000 Common stock $240,000 Less: Accumulated depreciation ($40,000) $170,000 Retained earnings $500,000 Trademarks $740,000 arks $140,000 Total stockholders' equity Total liabilities and stockholders' $1.060.000 equity Total assets $1.060,000 2.50:1 2.13:1 1.44:1 2.86:1

Answer 1

Ans.	Option 1st 2.50 : 1
	Current ratio   =   Total current assets / Total current liabilities
	$400,000 / $160,000
	2.50 : 1
	*Working Notes:
	Explanations: We assumed that the stock investments are the long term investments.
	Mortgage payable is a long term debt.
	*Calculations of Total current assets :
	Assets:	Amount
	Cash	$130,000
	Accounts receivables	$100,000
	Inventory	$110,000
	Prepaid insurance	$60,000
	Total current assets (a)	$400,000
	*Calculations of Total current liabilities :
	Liabilities:	Amount
	Accounts payable	$140,000
	Salaries and wages payable	$20,000
	Total current liabilities (b)	$160,000