Question

Jill’s business has current assets of $50,000 and current liabilities of $25,000. Which statement is true about the company’s current ratio? The ratio is $25,000 and is not acceptable for most industries. The ratio is 50% and is acceptable for most industries. The ratio is 2 and is acceptable for most industries. Current ratio can not be determined from the information given.

Answer 1

Answer:

The ratio is 2 and is acceptable for most industries  is true about the company’s current ratio.

Explanation:

Current Ratio shows the relationship between currents assets and current liabilities. It is a type of liquidity ratio which is required to meet short term liabilities. The current assets includes stock, debtors, cash whereas current liabilities include bills payable, creditors, etc. Both current assets and current liabilities have a life of less than one year. The formula to compute current ratio is given below:

Current Ratio = Current Assets ÷ Current Liabilities

The Current Assets is $50,000 whereas current liabilities of $25,000

So,

The current ratio = $50,000 ÷ $25,000 = 2 times

The current ratio is always shown in times only.

Thus, The ratio is 2 and is acceptable for most industries is true about the company’s current ratio and other statements are false.