Question

A partial list shows that Charles Corporation's adjusted trial balance included the following items (all account balances are normal):

Accounts payable $48,500, Accounts receivable $49,500, Capital stock $100,000, Cash $60,000, Dividends $10,000, Interest expense $4,000, Interest payable $3,200, Inventory $32,000, Prepaid expenses $4,200, Property, plant & equipment $123,000, Retained earnings $46,000, Rent expense $18,000, Revenues $101,000, and Salary expense $60,000. The note payable balance is due in nine months. How much is Charlie's current ratio? (Round your answer to two decimal places.)

Answer 1

Current ratio depicts the liquidity position of the company in short term. It tells us if current assets are enough to service short term obligations.

Accounts receivable	$          48,500
Cash	$          60,000
Inventory	$          32,000
Prepaid expenses	$            4,200
Current Assets (A)	$        144,700
Accounts Payable	$          48,500
Interest payable	$            3,200
Current Liabilities (B)	$          51,700
Current Ratio (A/B)	2.80

Although The note payable balance is due in nine months is mentioned in question, there is no note payable balance as given. If there is balance, add to current liabilities section.

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