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Using the balance sheet provided, what is the decimal value for the current ratio?

[tex]\[
\begin{array}{|l|l|l|l|}
\hline
\multicolumn{4}{|c|}{XYZ \text{ Company - Balance Sheet}} \\
\hline
\multicolumn{2}{|c|}{\text{Assets}} & \multicolumn{2}{c|}{\text{Liabilities}} \\
\hline
\text{Cash} & \$43,000 & \text{Notes} & \$45,000 \\
\hline
\text{Inventory} & \$46,000 & \text{Wages} & \$32,000 \\
\hline
\text{Property} & \$103,000 & & \\
\hline
& & \multicolumn{2}{|c|}{} \\
\hline
& & \multicolumn{2}{|c|}{\text{Owner's Equity}} \\
\hline
& & \text{Stock} & \$67,000 \\
\hline
& & \text{Investment} & \$48,000 \\
\hline
\end{array}
\][/tex]

\text{Current Ratio} = [?]



Answer :

GinnyAnswer
To determine the current ratio, we need to calculate the current assets and current liabilities and then divide the total current assets by the total current liabilities. Below are the step-by-step calculations:

1. Determine Current Assets:
- Current assets include cash and inventory.
- Cash = \[tex]$43,000 - Inventory = \$[/tex]46,000

Calculate the total current assets:
[tex]\[ \text{Current Assets} = \text{Cash} + \text{Inventory} \][/tex]
[tex]\[ \text{Current Assets} = 43,000 + 46,000 \][/tex]
[tex]\[ \text{Current Assets} = 89,000 \][/tex]

2. Determine Current Liabilities:
- Current liabilities include notes and wages.
- Notes = \[tex]$45,000 - Wages = \$[/tex]32,000

Calculate the total current liabilities:
[tex]\[ \text{Current Liabilities} = \text{Notes} + \text{Wages} \][/tex]
[tex]\[ \text{Current Liabilities} = 45,000 + 32,000 \][/tex]
[tex]\[ \text{Current Liabilities} = 77,000 \][/tex]

3. Calculate the Current Ratio:
The current ratio is the total current assets divided by the total current liabilities:
[tex]\[ \text{Current Ratio} = \frac{\text{Current Assets}}{\text{Current Liabilities}} \][/tex]
[tex]\[ \text{Current Ratio} = \frac{89,000}{77,000} \][/tex]
[tex]\[ \text{Current Ratio} \approx 1.155844155844156 \][/tex]

So, the decimal value for the current ratio is approximately 1.1558. This indicates that for every dollar of liability, the company has about 1.156 dollars in current assets, suggesting a healthy liquidity position.

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