Question

Southport industries company has current assests of $610000 and a current ratio is 4.1. Assume that the company prepays rent for 9 months in the amount of $34,000. The current ratio after this transaction is closest to:_____.

A) 5.03.
B) 3.90.
C) 3.68.
D) 4.12.

Answer 1

Answer: D. 4.12

Step-by-step explanation:

From the question, we are informed that Southport industries company has current assests of $610000 and a current ratio is 4.1 and that the company prepays rent for 9 months in the amount of $34,000.

It should be noted that the current ratio is calculated as:

= Current assets/Current liabilities

4.1 = $610,000/current liabilities

Current liabilities = $610,000/4.1

= $148,781

The current ratio will still be close.to 4.1 based on the above analysis.