A firm has a current ratio of 2:1 and current liabilities of $50,000. What are t
Practice Questions
Q1
A firm has a current ratio of 2:1 and current liabilities of $50,000. What are the current assets?
$100,000
$75,000
$50,000
$25,000
Questions & Step-by-Step Solutions
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.
