ExpertHard1 markMultiple Choice
CPA · Question 25 · Area I: Financial Reporting
Vertex Corp. has the following current assets and liabilities at year-end:<br/>- Cash: $85,000<br/>- Accounts receivable (net): $240,000<br/>- Inventory: $180,000<br/>- Prepaid expenses: $25,000<br/>- Accounts payable: $150,000<br/>- Accrued liabilities: $80,000<br/>- Current portion of long-term debt: $100,000<br/><br/>What is Vertex Corp.'s current ratio?
Vertex Corp. has the following current assets and liabilities at year-end:<br/>- Cash: $85,000<br/>- Accounts receivable (net): $240,000<br/>- Inventory: $180,000<br/>- Prepaid expenses: $25,000<br/>- Accounts payable: $150,000<br/>- Accrued liabilities: $80,000<br/>- Current portion of long-term debt: $100,000<br/><br/>What is Vertex Corp.'s current ratio?
Answer options:
A.
1.45
B.
1.61
C.
1.73
D.
2.27
How to approach this question
Calculate current ratio as total current assets divided by total current liabilities. Include all assets expected to be converted to cash within one year and all liabilities due within one year.
Full Answer
B.1.61✓ Correct
1.61
The current ratio measures liquidity by comparing current assets to current liabilities. Current assets total $530,000 (all items convertible to cash within one year). Current liabilities total $330,000 (all obligations due within one year, including the current portion of long-term debt).
Common mistakes
Omitting prepaid expenses from current assets, forgetting current portion of long-term debt in current liabilities, or mathematical errors
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