Question

As the accountant for Marston Retail Stores, you must calculate the current ratio for the firm's last accounting period. The firm's current assets were $120,000, its fixed assets were $240,000, its current liabilities were $80,000, and its long-term liabilities were $60,000.

Given these facts, what is the firm's current ratio?

A) 4 B) 1.5 C) 3 D) 2 E) 1

Answer 1

C) 3

Step-by-step explanation:

The current ratio is the firms Current assets relative to its current liabilities.

It can be calculates as follows,

Current Ratio = Current assets / Current liabilities

Current Ratio = 240,000 / 80,000

Current ratio = 3

This signifies a healthy ratio as the company has 3 times as much current assets as compared to its current liabilities.

Hope that helps.