Sportique Boutique reported the following financial data for 2012 and 2011. (a)

Question

Sportique Boutique reported the following financial data for 2012 and 2011.

(a) Calculate the current ratio for Sportique Boutique for 2012 and 2011.

(b) Suppose that at the end of 2012, Sportique Boutique used $3.5 million cash to pay off $3.5 million of accounts payable. How would its current ratio change?

SPORTIQUE BOUTIQUE
Balance Sheet (partial)
September 30 (in thousands)

2012
2011 Current assets



    Cash and short-term deposits
$4,564
$2,598     Accounts receivable
4,013
3,171     Inventories
3,181
1,254     Other current assets
446
238       Total current assets
$12,204
$7,261 Current liabilities
$6,097
$5,103

Explanation / Answer

Hi,

Please find the answer as follows:

Part A:

Current Ratio (2011) = 7261/5103 = 1.42

Current Ratio (2012) = 12204/6097 = 2

Part B:

The current ratio would not change in the given case because a decrease in the value of cash resulted in a corresponding decline in accounts payable (which is a current liability).

Thanks.

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