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1. Redfern Company has current assets of $150,000 and current liabilities of $60,000. How much inventory...

1. Redfern Company has current assets of $150,000 and current liabilities of $60,000. How much inventory could it purchase on account and achieve its minimum desired current ratio of 2 to 1?

a.$40,000

b.$30,000

c.$10,000

d.$20,000

2. Which of the following accounts is not classified as a current liability?

a.Salaries payable

b.Taxes payable

c.Accounts payable

d.Note payable, due in three years

3. Which of the following is not classified as a noncurrent liability?

a.Bonds payable

b.Current portion of long-term debt

c.Mortgage payable

d.Capital lease obligations

4.Current liabilities are defined as those liabilities that will be satisfied

a.by the end of the operating cycle.

b.within one year.

c.within one year or within the operating cycle, whichever is shorter.

d.within one year or within the operating cycle, whichever is longer.

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Homework Answers

Answer #1

1) Current assets = $150,000

Current Liabilities = $60,000

Let inventory purchased on account = P

So, the Current liabilities also increase by 'P' because of increase in Creditor

Current ratio = Current Assets / Current Liabilities

[$150,000 + P] / [$60,000 + P] = 2 / 1

$150,000 + P = 2 * ($60,000 + P)

P = $30,000

So, Inventory purchased on account = $30,000

2) Option 'd''

Notes payable due in 3 years is not a current liability.

3) Option 'b' is correct

Current portion of Long-Term Debt

4) Option 'd' is correct

Current liabilities are defined as those liabilities that will be satisfied within 1 year or within the operating cycle whichever is longer.

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