A company has current assets that total $500,000, a current ratio of 2.00, and u

Question

A company has current assets that total $500,000, a current ratio of 2.00, and uses the perpetual inventory method. Assume that the following transactions are completed: (1) sold $12,000 in merchandise on short-term credit for $15,000, (2) declared but did not pay dividends of $50,000, (3) paid prepaid rent in the amount of $12,000, (4) paid previously declared dividends in the amount of $50,000, (5) collected an account receivable in the amount of $12,000, and (6) reclassified $40,000 of long-term debt as a current liability. Compute the updated current ratios.

Explanation / Answer

Current assets 500,000 +15,000-12,000+12,000-12,000-50,000+12,000-12,000= 453,000 Current liabilities (500,000/2) 250,000+50,000-50,000+40,000= 290,000 Updated current ratio 453/290= 1.56

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