Question

At the end of Year 1, Swanson Corporation has $650,000 in current assets and $500,000 in current liabilities. During Year 2, the company realizes a $100,000 increase in each amount, such that at the end of Year 2, the company has $750,000 in current assets and $600,000 in current liabilities. Calculate the current ratio for Year 1 and for Year 2.

Answer 1

Answer:

year 1, 1.3  : year 2, 1. 25

Explanation:

The current ratio is a financial ratio used to gauge a company's ability to pay its current liability when they become due.

The formula for calculating currents assets

Current ratio = current assets/ current liabilities

For year 1,

Current assets : $650,000, current liabilities: $500,000

Current ratio = $650,000/$500,000

Current ratio =1.3

For year 2:

Current assets: $750,000 : current liabilities: $600,000

Current ratio = $750,000 / $600,000

Current ration =1.25