Please Refer to the Following Information and Compute the Current

question 52

Multiple Choice

Please refer to the following information and compute the current ratio: $$\begin{array} { | l | r | r | } \hline & { \text { Debit } } &{ \text { Credit } } \\\hline \text { Cash } & \$ 4,500 & \\\hline \text { Accounts receivable } & 1,200 & \\\hline \text { Prepaid rent } & 700 & \\\hline \text { Land } & 20,000 & \\\hline \text { Equipment } & 4,000 & \\\hline \text { Accumulated depreciation } & & \$ 800 \\\hline \text { Accounts payable } & & 2,900 \\\hline \text { Salary payable } & & 600 \\\hline \text { Notes payable-long term } & & 9,000 \\\hline\end{array}$$

• A) 1.83
• B) 0.55
• C) 0.51
• D) 0.42

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Definitions:

Inventory Valuation

The method used to calculate the cost of goods sold and ending inventory, such as FIFO, LIFO, or weighted average cost.

Casualty

An unexpected or sudden event causing loss or damage, often used in insurance to refer to accidents or mishaps causing physical harm or property damage.

Retail Basis

A method of inventory accounting where inventory is valued at retail prices, then converted to a cost basis using a predetermined cost-to-retail ratio.

Lower of Average Cost

A method to value inventory at the lower of its historical average cost or the market cost, ensuring a conservative asset valuation.