Question

The following information was drawn from the balance sheets of the Kansas and Montana companies: Kansas Montana Current assets $ 59,000 $ 78,000 Current liabilities 40,000 43,000 Required a. Compute the current ratio for each company. b. Which company has the greater likelihood of being able to pay its bills

Answer 1

Answer:

a. Current Ratio = Current Assets/ Current liabilities

Kansas Current Ratio;

= 59,000 / 40,000

= 1.48

Montana Current Ratio

= 78,000 / 43,000

= 1.81

b. MONATANA is most likely.

The Current ratio is used to calculate the amount to which a company can pay off its current liabilities using its current assets. Montana has a higher Current ratio so they are most likely.