Question

S4-14 Calculating the current ratio End of the Line Montana Refrigeration has these account balances at December 31, 2018: Account Dollar amount Notes Payable, Long-term 9,200 Prepaid Rent 2,500 Salaries Payable 2,600 Services Revenue 15,600 Office Supplies 1,300 Accumulated Depreciation—Equipment 4,000 Advertising Expense 900 Accounts Payable 3,600 Accounts Receivable 6,600 Cash 3,500 Depreciation Expense—Equipment 400 Equipment 24,000 Common Stock 6,000 Rent Expense 1,800 Requirements Calculate End of the Line Montana Refrigeration’s current ratio. How much in current assets does End of the Line Montana Refrigeration have for every dollar of current liabilities that it owes?

Answer 1

Answer:

2.24 times

Explanation:

The formula and the computation of the current ratio is shown below:

As we know that

Current ratio = Current assets ÷ current liabilities

where,

Current assets = Prepaid rent + office supplies + account receivable + cash  

= $2,500 + $1,300 + $6,600 + $3,500

= $13,900

And, the current liabilities is

= Account payable + salaries payable

= $3,600 + $2,600

= $6,200

So, the current ratio is

= $13,900 ÷ $6,200

= 2.24 times