You are evaluating the balance sheet for PattyCake’s Corporation. From the balance sheet you find the following balances:

cash and marketable securities = $360,000;
accounts receivable = $1,280,000;
inventory = $2,180,000;
accrued wages and taxes = $540,000;
accounts payable = $840,000; and
notes payable = $680,000.

Calculate Current Ratio?

Explanation:

Current Assets are those asset which will be liquidated within next one year.

cash and marketable securities        $360,000

accounts receivable                           $1,280,000

inventory                                             $2,180,000

Total Current Assets                          $3,820,000

Current Liabilities are those which is payable within next one year.

accrued wages and taxes                   $540,000

accounts payable                                $840,000

notes payable                                      $680,000

Total Current Liabilities                       $2,060,000

Current ratio measures the capability of a business to pay the current liabilities if it becomes due.

Current Ratio = Current Assets / Current Liabilities = $3,820,000 / $2,060,000 = 1.85 times

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