12 The financial statements for Lexington Service Company in

12) The financial statements for Lexington Service Company include the following items: 2017 2016 Cash S52,500 $49,000 20,000 51,000 46,000 534,000 553,000 129,500 126,000 14,000 55,000 Short-term Investments 33,000 52,000 160,000 Net Accounts Receivable Merchandise Inventory Total Assets Accounts Payable Salaries Payable Long-term Note Payable 25,000 58,000 Compute the current ratio for 2016. (Round answer to two decimal places.) A) 1.19 B) 0.84 C) 3.95 D) 6.66

Solution

Current ratio = Current assets / Current liabilities

Current assets = (Cash + short term investments + accounts receivable + inventory

= 49000 + 20000 + 51000 + 46000 = 166000

Current liabilities = Accounts payable + salaries payable = 126000 + 14000 = 140000

Current ratio = 166000 / 140000 = 1.19