A firm has a current ratio of 2:1 and current liabilities of $50,000. What are t

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Question: A firm has a current ratio of 2:1 and current liabilities of $50,000. What are the current assets?

Options:

Correct Answer: $100,000

Solution:

Current Ratio = Current Assets / Current Liabilities. Let Current Assets = x. Therefore, x / 50,000 = 2, x = 2 * 50,000 = $100,000.

A firm has a current ratio of 2:1 and current liabilities of $50,000. What are the current assets?

A firm has a current ratio of 2:1 and current liabilities of $50,000. What are the current assets?

Step 1: Understand the current ratio formula, which is Current Ratio = Current Assets / Current Liabilities.
Step 2: Identify the given values. The current ratio is 2:1 and current liabilities are $50,000.
Step 3: Set up the equation using the current ratio. Let Current Assets be x. So, the equation is x / 50,000 = 2.
Step 4: To find x, multiply both sides of the equation by 50,000. This gives you x = 2 * 50,000.
Step 5: Calculate the value of x. 2 * 50,000 = 100,000.
Step 6: Conclude that the current assets are $100,000.

Current Ratio – The current ratio is a liquidity ratio that measures a company's ability to pay short-term obligations with its current assets.
Current Assets and Liabilities – Current assets are assets that are expected to be converted into cash or used up within one year, while current liabilities are obligations due within the same time frame.