Question

M13-9 Inferring Financial Information Using the Current Ratio [LO 13-4] Mystic Laboratories reported total assets of $10,500,000 and noncurrent assets of $2,167,000. The company also reported a current ratio of 1.3. What amount of current liabilities did the company report?

Answer 1

Answer: $6,410,000

Explanation:

The current ratio calculates the ability of a company to meet its short term liabilities.

A current ratio greater than 1 indicates that a company is more able to meet its short term obligations. Mystic Laboratories with a current ratio of 1.3 has a greater ability to meet its short term obligations.

Current ratio = current assets / current liabilities

Total assets = current assets + non current assets

$10,500,000 = current assets + $2,167,000

Current assets = $8,333,000

1.3 = $8,333,000 / current liabilities

Current liabilites = $6,410,000

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