Question

Refer to the following selected financial information from McCormik, LLC. Compute the company's current ratio for Year 2. Year 2 Year 1 Cash $ 38,500 $ 33,250 Short-term investments 100,000 65,000 Accounts receivable, net 90,500 84,500 Merchandise inventory 126,000 130,000 Prepaid expenses 13,100 10,700 Plant assets 393,000 343,000 Accounts payable 108,400 112,800 Net sales 716,000 681,000 Cost of goods sold 395,000 380,000

Answer 1

Answer: 3.39

Explanation: Current ratio can be defined as a liquidity ratio which is used by the accountants the evaluate the ability of the company to pay its short term obligations. It can be computed as follows :-

$current\ ratio=\frac{curret\ assets}{current\ liabilities}$

where,

current assets = $38,500 + $100,000 + $90,500 + $126,000 + $13,100 = $368,100

current liabilities = $108,400

now putting the values into equation we get :-

$current\ ratio=\frac{368,100}{108,400}$

                             = 3.39