A Vero Beach contractor's opening balance sheet has current assets of $196,000 and current liabilities of $140,000. What current ratio should the startup file show?
Correct Answer
C) 1.40 to 1
Current ratio equals current assets divided by current liabilities.
Why This Is the Correct Answer
Current ratio equals current assets divided by current liabilities.
Why the Other Options Are Wrong
Option A: 0.71 to 1 insurance evidence file
0.71 to 1 insurance evidence file is below the supported result for opening liquidity; it likely uses the wrong base, period, or account bucket.
Option B: 1.22 to 1 banking setup log
1.22 to 1 banking setup log is below the supported result for opening liquidity; it likely uses the wrong base, period, or account bucket.
Option D: 1.76 to 1 tax registration packet
1.76 to 1 tax registration packet is above the supported result for opening liquidity; it likely adds an unsupported amount or compares the wrong financial base.
Memory Technique
Lender Reviews money test: bucket before math for opening liquidity.
Reference Hint
Open-book path: tab Builder's Guide to Accounting, 2001 to Builder's Guide to Accounting, Financial ratios; startup liquidity; verify the startup duty, registration, or financial setup before answering.
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