Question

as of december 31, the stanford company has the following information. use this information to answer questions 1 to 3.

\

$$\begin{tabular}{|l|r|} \\hline cash & \\$5,000 \\\\ \\hline accounts receivable & 15,000 \\\\ \\hline inventory & 40,000 \\\\ \\hline prepaid insurance & 3,000 \\\\ \\hline fixed assets & 100,000 \\\\ \\hline accounts payable & 15,000 \\\\ \\hline notes payable in 5 months & 12,500 \\\\ \\hline salary payable & 25,000 \\\\ \\hline notes payable in 5 years & 35,000 \\\\ \\hline owners equity & 98,000 \\\\ \\hline \\end{tabular}$$

1. what is the companys current ratio?

( ) 2.5
( ) 1.75
( ) 2.1
( ) 1.2

question 4 (10 points)
the current ratio includes at the of the following except:

( ) current assets
( ) current liabilities
( ) prepaid expenses

Explanation:

Calculate total current assets

Using the Current Assets knowledge point

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$$

Calculate total current liabilities

Using the Current Liabilities knowledge point

$$
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$$

Compute the current ratio

We divide the total current assets by the total current liabilities.

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Analyze components of the current ratio

The current ratio formula is defined as:

$$ \text{Current Ratio} = \frac{\text{Current Assets}}{\text{Current Liabilities}} $$

Current assets include cash, accounts receivable, inventory, and prepaid expenses (such as prepaid insurance). Therefore, the current ratio calculation directly includes current assets and current liabilities. It does not include prepaid expenses as a separate standalone category in the formula itself, as they are already a subcomponent of current assets.

Answer:

Question 2

• 2.5
• 1.75
• 2.1
• 1.2 (Correct answer)

Question 4

• Current Assets
• Current Liabilities
• Prepaid Expenses (Correct answer)