Question

At December 31, 2019, Sharon Lee Corporation reported current assets of $343,980 and current liabilities of $196,600. The following items may have been recorded incorrectly. 1. Goods purchased costing $20,440 were shipped f.o.b. shipping point by a supplier on December 28. Lee received and recorded the invoice on December 29, 2019, but the goods were not included in Lee's physical count of inventory because they were not received until January 4, 2020. 2. Goods purchased costing $15,950 were shipped f.o.b. destination by a supplier on December 26. Lee received and recorded the invoice on December 31, but the goods were not included in Lee's 2019 physical count of inventory because they were not received until January 2, 2020. 3. Goods held on consignment from Claudia Kishi Company were included in Lee's December 31, 2019, physical count of inventory at $11,890. 4. Freight-in of $3,040 was debited to advertising expense on December 28, 2019.
Recompute the current ratio after corrections are made. (Round ratio to 2 decimal places, e.g. 2.31:1.) The current ratio 1.88 :1

Answer 1

Answer:

1.97 times

Explanation:

The formula to compute the current ratio is shown below:

Current ratio = Total Current assets ÷ total current liabilities

Current ratio before any adjustment is shown below:

So, current ratio = $343,980 ÷ 196,600 = 1.75 times

Current ratio after  adjustments are shown below:

Current assets = Before adjustment balance + goods purchased costing - physical count of inventory + freight-in charges

= $343,980 + $20,440 - 11,890 + 3,040

= $355,570

Current liabilities = Before adjustment balance - goods not received

                            = $196,600 - $15,950

                            = $180,650

So, the current ratio would be

= $355,570 ÷ $180,650

= 1.97 times