Use the information below to compute the current ratio. (The same company and nu

Question

Use the information below to compute the current ratio. (The same company and numbers are used for questions 19 -22)

SHARKEY CORPORATION
Selected Financial Data As of December 31,
2007 2006
Cash                                                   $ 8,000      $ 60,000
Marketable securities                           32,000           8,000
Accounts receivable                             40,000 110,000
Inventory                                             80,000       140,000
Net property, plant, and equipment    240,000        280,000
Accounts payable                                60,000 100,000
Short- term notes payable                    30,000 50,000
Credit sales                                        600,000 900,000
Cost of goods sold                          1,260,000    1,403,000

a. 1.40

b. 2.60

c. 1.90

d. 1.78

Explanation / Answer

Current ratio = Current assets / Current liabilities

Current assets = Cash + Marketable securities + Accounts receivable + Inventory

Current assets = $8,000 + $32,000 + $40,000 + $80,000 = $160,000

Current liabilities = Accounts payable + Short- term notes payable

Current liabilities = $60,000 + $30,000 = $90,000

Current ratio = Current assets / Current liabilities'

Current ratio = $160,000 / $90,000 = 1.78

Thus, Option d. 1.78 is the correct answer.

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