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Cornerstones of Financial Accounti...

4th Edition
Jay Rich + 1 other
ISBN: 9781337690881

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BuyFindarrow_forward

Cornerstones of Financial Accounti...

4th Edition
Jay Rich + 1 other
ISBN: 9781337690881
Textbook Problem
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How is the current ratio calculated?

a. Current Assets/Current Liabilities

b. Cash Flows from Operating Activities/Current Liabilities

c. (Cash + Marketable Securities)/Current Liabilities

d. (Cash + Marketable Securities + Accounts Receivable)/Current Liabilities

To determine

Concept introduction:

Current Ratio:

Current Ratio is measure of the company’s ability to pay off its current liabilities using its current assets. It is calculated by dividing the total current assets by total current liabilities. The formula of the current ratio is as follows:

Current Ratio=Current assetsCurrent liabilities

To choose:

The correct option for calculation for current ratio.

Explanation

Explanation for correct answer:

The current ratio is calculated by dividing the total current assets by total current liabilities. Hence the correct option is a.

Explanation for incorrect answers:

b. The current ratio is calculated by dividing the total current assets by total current liabilities...

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