On January 1, 5G Co. reported current assets of $72,000 and current liabilities of $60,000. Compute total
Question:
On January 1, 5G Co. reported current assets of $72,000 and current liabilities of $60,000. Compute total current assets, total current liabilities, and the current ratio at January 1 and after each of the following transactions.
Jan. 5 Purchased equipment to be used in operations for $18,000 cash.
Jan. 12 Paid $5,000 cash for accounts payable.
Jan. 18 Acquired a building in exchange for a $99,000 long-term note payable, first payment to occur in 3 years.
Jan. 22 Purchased $12,000 of merchandise on credit, terms n/45.
Jan. 31 Sold outdated machinery for $12,700 cash.
Step by Step Answer:
On January 1 Current Assets are Current Liabilities are Calculation of Current Ratio Hence the curre...View the full answer
Financial Accounting Information For Decisions
ISBN: 9781260705584
10th Edition
Authors: John J. Wild
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The current ratio is a financial ratio that measures a company\'s ability to pay its short-term obligations with its short-term assets. It is calculated by dividing a company\'s current assets by its current liabilities. The formula for calculating the current ratio is: Current Ratio = Current Assets / Current Liabilities Current assets are assets that can be converted to cash within one year, while current liabilities are debts that are due within one year. A current ratio of 1:1 or greater is generally considered good, as it indicates that a company has enough current assets to cover its current liabilities. A current ratio of less than 1:1 may suggest that a company may have difficulty meeting its short-term obligations. It\'s important to note that the current ratio is just one of many financial ratios that can be used to assess a company\'s financial health. It should be used in conjunction with other financial ratios and qualitative factors to make informed decisions about investing or lending to a company.
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