Ratios: Working Capital and the Current Ratio

Concept: Ratios: Working Capital and the Current Ratio

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Problem: The following table contains selected financial information for Tougher Question, Inc.

Calculate the current ratio and working capital for TQ, Inc.

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Ratios: Working Capital and the Current Ratio Additional Practice Problems

Charity Kemper analyzes a company's current ratio before deciding whether to invest in the company. What types of information does Charity hope to gleam by analyzing the current ratio?

a. The company's proportion of current to long-term liabilities.

b. The company's proportion of current to long-term assets.

c. The company's proportion of assets that is financed with debt.

d. The company's ability to pay current liabilities with current assets.

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What was Eric's working capital as of 12/31/12?

a. $9,410

b. $12,360

c. $9,160

d. $11,160

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A company has a current ratio of 2.4 before purchasing a piece of equipment with cash. Following this payment the current ratio will be:

a. less than 2.4

b. greater than 2.4 or less than 2.4 depending upon the dollar amount involved

c. greater than 2.4

d. equal to 2.4

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Current assets are $400,000 of the total assets of $1,000,000. Current liabilities are $200,000 of the total liabilities of $700,000. What is the current ratio?

A) 2.00

B) 2.50

C) 1.43

D) 1,75

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Which of the following accounts would be part of working capital?

A. accounts payable

B. land

C. supplies

D. retained earnings

E. cost of goods sold

F. two of the above accounts are part of working capital

G. three of the above accounts are part of working capital

H. four of the above accounts are part of working capital

I. all of the above accounts are part of working capital

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All other things being equal, which of the following would  decrease the current ratio?

a. A fixed asset is sold for more than book value.

b. The estimated taxes payable are increased.

c. Accounts receivable are collected.

d. Cash is acquired through issuance of additional common stock.

e. Ten-year notes are issued to pay off accounts payable.

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Sheffield's Furniture has $1,386,500 in current assets and $635,000 in current liabilities.  Its initial inventory level is $460,000, and it will raise funds as additional notes payable and use them to increase inventory.  How much can its short-term debt (notes payable) increase without pushing its current ratio below 1.9?

a. $94,737

b. $180,000

c. $311,111

d. $200,000

e. $147,368

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All other things being equal, which of the following would decrease the current ratio?

a. Equipment is purchased with short-term notes.

b. A fixed asset is sold for more than book value.

c. Cash is acquired through issuance of additional common stock.

d. Short-term promissory notes are issued to trade creditors in exchange for past-due accounts payable.

e. Ten-year notes are issued to pay off accounts payable.

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Sheffield's Furniture has $1,292,000 in current assets and $580,000 in current liabilities.  Its initial inventory level is $620,000, and it will raise funds as additional notes payable and use them to increase inventory.  How much can its short-term debt (notes payable) increase without pushing its current ratio below 1.9?

a. $477,778

b. $100,000

c. $190,000

d. $211,111

e. $226,316

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From a liquidity standpoint, it is more desirable for a company to have current

a. assets equal current liabilities.

b. liabilities exceed current assets.

c. assets exceed current liabilities.

d. liabilities exceed long-term liabilities.

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The current ratio is

a. calculated by dividing current liabilities by current assets.

b. used to evaluate a company's liquidity and short-term debt paying ability.

c. used to evaluate a company's solvency and long-term debt paying ability.

d. calculated by subtracting current liabilities from current assets.

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What is the current ratio for this company?

a. 1.42

b. 0.80

c. 1.16

d. 0.60

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Listed below are the account balances of the Frank Corporation on December 31, 2014.

What is Frank’s current ratio:

A. 1.077.

B. 0.929.

C. 1.190.

D. 0.933.

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