Introduction to Current Assets

Martins Hardware has cash of $42,100 in the bank and on hand, net accounts receivable from customers of $29,200, and prepaid expenses of $12,000. It also has $89,000 in current liabilities and $80,000 in long-term liabilities. What is the current ratio for Martins Hardware?

0.94

Office Renovation Inc. has cash of $22,850, net accounts receivable of $18,250, short-term investments of $5,000, and supplies of $10,800. It also has $15,199 in current liabilities and $28,000 in long-term liabilities. What is the current ratio for Office Renovation Inc.?

3.74

Janice Janitorial Supplies has cash of $28,000, net accounts receivable of $33,500, short-term investments of $6,000, and inventory of $20,000. It also has $22,500 in current liabilities and $37,500 in long-term liabilities. What is the current ratio for Janice Janitorial Supplies?

3.89

Which of the following items is not considered a current asset?

Buildings

Which of the following represents working capital?

Current assets minus current liabilities

Red Onion Restaurant classifies a 6-month prepaid insurance policy as a current asset. Which of the following factors is the restaurant's rationale based on?

Definition

How is a business' current ratio that is used to find liquidity calculated?

Dividing the total current assets by the current liabilities

Which of the following assets is not expected to be converted to cash or consumed within 1 year or the operating cycle?

Goodwill

Which of the following would result if a business has a current ratio less than 1?

It may not have enough liquidity to cover short-term expenses.

Which of the following items is included in current assets?

Items that can be converted into cash within a year

Which of the following defines a measurement of a company's available cash?

Liquidity

Which of the following is correct about current assets of a company?

The higher the current ratio, the more liquidity the company has.

Suppose that a company has $25,000 of current assets and $50,000 of current liabilities. The current ratio would be calculated by dividing $25,000 by $50,000 to arrive at a 0.5:1 ratio. Which of the following is true about this company? (Multi-Answer)

This company has weak liquidity. This company may be a risky investment.

Suppose that a company has $50,000 of current assets and $25,000 of current liabilities. The current ratio would be calculated by dividing $50,000 by $25,000 to arrive at a 2:1 ratio. Which of the following is true about this company?

This company may be considered to be a relatively safe company to invest in. This company has strong liquidity.

Cash equivalents would not include ___________.

cash not available for current operations

A note receivable due in 90 days is listed on the balance sheet under the caption ___________.

current assets

The accounts on a balance sheet that can be easily converted into cash or consumed quickly, within a year or within the normal operating cycle of the business are ___________.

current assets

Cash equivalents would include ___________.

highly liquid equity securities

Current assets include cash and all other assets expected to become cash or be consumed ___________.

within 1 year or one operating cycle, whichever is longer