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College Accounting (Book Only): A ...

13th Edition
Scott + 1 other
ISBN: 9781337280570

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BuyFindarrow_forward

College Accounting (Book Only): A ...

13th Edition
Scott + 1 other
ISBN: 9781337280570
Textbook Problem

The data needed to calculate working capital and its current ratio can be found on which of the following?

  1. a. Classified balance sheet
  2. b. Statement of owner’s equity
  3. c. Classified income statement
  4. d. Chart of accounts
  5. e. All of the above

To determine

Find the correct option, the option that indicates the financial statement on which the data required to compute working capital and current ratio is found.

Explanation

Classified balance sheet: The main elements of balance sheet assets, liabilities, and stockholders’ equity are categorized or classified further into sections in a classified balance sheet. Assets are further classified as current assets, long-term investments, property, plant, and equipment (PPE), and intangible assets. Liabilities are classified into two sections current and long-term. Stockholders’ equity comprises of common stock and retained earnings. Thus, the classified balance sheet includes all the elements under different sections.

Justification for correct answer: Working capital is the measure which evaluates the ability of a company to pay off the short-term debt obligations, by computing the excess of current assets over current liabilities. Current ratio is the financial ratio which evaluates the ability of a company to pay off the current debt obligations out of the available current assets. So, both working capital and current ratio require current assets and current liabilities, which are found in the classified balance sheet...

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