Question

For the FY 2018, Dorchester Company's balance sheet included the following current items: cash $51,000, accounts receivable $100,000, inventories $114,000, prepaid expenses $21,000, accounts payable $60,000, and accrued expenses $60,000.  Use this information to determine the Current Ratio. (Round & enter your answers to one decimal place.)

Answer 1

Solution:

The current ratio known as working capital ratio shows the capability of a business to meet its short-term liabilities within one year.

In the given Question -
Current Assets	=	Cash + Accounts receivable + Inventories + Prepaid Expenses
	=	1,000 + 1,00,000 + 1,14,000 + 21,000
	=	2,36,000
Current Liabilities	=	Accounts Payable + Accrued Expenses
	=	60,000 + 60,000
	=	1,20,000

The formula to calculate Current Assets is	=	Current Assets
		Current Liabilities
	=	2,36,000
		1,20,000
	=	1.97