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Assume the following Balance Sheet for a company: BALANCE SHEET ASSETS Cash $ 5,000 Accounts Receivable $125,000 Inventory $200,000 Land $70,000 Buildings $200,000 Less: Accumulated Depreciation $100,000 Total Assets $500,000 LIABILITIES AND EQUITY Accounts Payable $100,000 Income Tax Payable $50,000 Mortgage Loan $200,000 Common Stock $100,000 Retained Earnings $50,000 Total Liabilities and Equity $500,000 Compute the current ratio for this company. Group of answer choices

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Answer:

2.20 times

Explanation:

The computation of the current ratio is shown below:

Current ratio = Total current assets ÷ Total current liabilities

where,

Total current assets = Cash + account receivable + inventory

= $5,000 + $125,000 + $200,000

= $330,000

And, the total current liabilities is  

= Income tax payable + account payable

= $50,000 + $100,000

= $150,000

So, the current ratio is

= $330,000 ÷ $150,000

= 2.20 times

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