Problem 4.14 (Solution Video)
Sandhill Electronics has a quick ratio of 1.45, current liabilities of $5,330,000, and inventories of $6,727,900. What is the firm’s current ratio? (Round answer to 2 decimal places, e.g. 12.25.)
Current ratio |
Calculation of Current Ratio of Sandhill Electronics
Step 1: Calculate Quick Assets using Quick
Ratio formula
Quick Ratio = 1.45
Quick Assets / Current Liabilities = 1.45
Quick Assets = 1.45 * Current Liabilities
Quick Assets = 1.45 * 5,330,000
Quick Assets = 7,728,500
Step 2: Calculate the Current Assets.
Current Assets = Quick Assets + Inventories
Current Assets = 7,728,500 + 6,727,900
Current Assets = 14,456,400
Step 3: Calculate Current Ratio.
Current Ratio = Current Assets / Current Liabilities
Current Ratio = 14,456,400 / 5,330,000
Current Ratio = 2.712
Current Ratio is 2.71 (rounded off to 2 decimal places).
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