Question

A partial list shows that Charles Corporation's adjusted trial balance included the following items (all account balances are normal):

Accounts payable $38,000, Accounts receivable $45,000, Capital stock $100,000, Cash $54,000, Dividends $10,000, Interest expense $4,000, Interest payable $3,200, Inventory $32,000, Prepaid expenses $4,800, Property, plant & equipment $123,000, Retained earnings $46,000, Rent expense $18,000, Revenues $101,000, and Salary expense $60,000. The note payable balance is due in nine months. How much is Charlie's current ratio? (Round your answer to two decimal places.)

Answer 1

Answer)

Calculation of Current ratio

Current Ratio = Current Assets/ Current Liabilities

                          = $ 135,800/ $ 103,800

                        = 1.31 times   

Therefore the current ratio of the company is 1.31 times.

Working note:

Calculation of Notes Payable:

Trial Balance

	Debit	Credit
Accounts Receivable	$45,000
Cash	$54,000
Dividends	$10,000
Interest Expense	$4,000
Inventory	$32,000
Prepaid Expenses	$4,800
Property, Plant and Equipment	$123,000
Rent Expense	$18,000
Salary Expense	$60,000
Accounts Payable		$38,000
Interest Payable		$3,200
Revenues		$101,000
Capital Stock		$100,000
Retained Earnings		$46,000
Note Payable (balancing Figure)		$62,600
Total	$350,800	$350,800

Calculation of Current Liabilities:

Current Liabilities	Amount (in $)
Accounts Payable	$38,000
Interest Payable	$3,200
Note Payable	$62,600
Total	$103,800

Calculation of Current Assets:

Current Assets	Amount (in $)
Accounts Receivable	$45,000
Cash	$54,000
Inventory	$32,000
Prepaid Expenses	$4,800
Total	$135,800