For a Cooper City contractor's balance sheet, current assets are $1,064,000 and current liabilities are $760,000. What current ratio should be reported?
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: 1.25 to 1
1.25 to 1 is below the supported result for current ratio; it likely uses the wrong base, period, or account bucket.
Option B: 1.60 to 1
1.60 to 1 is above the supported result for current ratio; it likely adds an unsupported amount or compares the wrong financial base.
Option D: 1.85 to 1
1.85 to 1 is above the supported result for current ratio; it likely adds an unsupported amount or compares the wrong financial base.
Memory Technique
Assets and divided live in different drawers; Surety Analyst tells which opens.
Reference Hint
Open-book path: tab Builder's Guide to Accounting, 2001 to Section Three, Financial Ratios, Balance Sheet Ratios; use the job ledger figures in the stem and recompute the same accounting measure.
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