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Chapter 4: 6TI (page 204)

Benson Auto Repair has the following account balances at December 31, 2018, from its adjusted trial balance. Compute

Benson Auto Repair’s current ratio.

Cash \( 4,000 Common Stock \) 20,000

Accounts Receivable 3,200 Retained Earnings 15,700

Prepaid Rent 1,900 Dividends 2,100

Office Supplies 3,000 Service Revenue 1,600

Equipment 34,800 Depreciation Expense—Equipment 300

Accumulated Depreciation—Equipment 1,600 Salaries Expense 800

Accounts Payable 5,400 Rent Expense 500

Notes Payable (long-term) 7,000 Utilities Expense 600

Supplies Expense 100

Short Answer

Expert verified

The current ratio equals 2.24.

Step by step solution

01

Explanation on Current Ratio

Current ratio measures the financial ability to repay the current obligations (liabilities) by utilizing the current assets.

02

Calculation of Current Ratio

Current ratio is calculated as follows:

CurrentRatio=TotalCurrentAssetsTotalCurrentLiabilities=Cash+AcountsReceivable+PrepaidRent+OfficeSuppliesAccountsPayable=$4,000+$3,200+$1,900+$3,000$5,400=2.24

Thus, the current ratio is 2.24.

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Most popular questions from this chapter

On December 1, Bob Waldo began an auto repair shop, Waldo’s Quality Automotive. The following transactions occurred during December: Dec. 1 Waldo contributed \(70,000 cash to the business in exchange for shares of common stock. 1 Purchased \)12,000 of equipment paying cash. 1 Paid \(1,750 for a five-month insurance policy starting on December 1. 9 Paid \)20,000 cash to purchase land to be used in operations. 10 Purchased office supplies on account, \(2,800. 19 Borrowed \)15,000 from the bank for business use. Waldo signed a note payable to the bank in the name of the corporation. The note is due in five years. 22 Paid \(1,300 for advertising expenses. 26 Paid \)900 on account. 28 The business received a bill for utilities to be paid in January, \(280. 31 Revenues earned during the month included \)16,000 cash and \(3,600 on account. 31 Paid employees’ salaries \)3,800 and building rent \(1,200. Record as a compound entry. 31 The business received \)1,440 for auto screening services to be performed next month. 31 Paid cash dividends of \(5,500 to stockholders. The business uses the following accounts: Cash; Accounts Receivable; Office Supplies; Prepaid Insurance; Land; Equipment; Accumulated Depreciation—Equipment; Accounts Payable; Utilities Payable; Interest Payable; Unearned Revenue; Notes Payable; Common Stock; Retained Earnings; Dividends; Income Summary; Service Revenue; Salaries Expense; Rent Expense; Utilities Expense; Advertising Expense; Supplies Expense; Insurance Expense; Interest Expense; and Depreciation Expense—Equipment. Adjustment data: a. Office Supplies used during the month, \)1,800. b. Depreciation for the month, \(200. c. One month insurance has expired. d. Accrued Interest Expense, \)75. Requirements 1. Prepare the journal entries, and post to the T-accounts. 2. Prepare an unadjusted trial balance. 3. Complete the worksheet for the month ended December 31, 2018 (optional). 4. Prepare the adjusting entries, and post to the T-accounts. 5. Prepare an adjusted trial balance.6. Prepare the income statement, the statement of retained earnings, and the classified balance sheet in report form. 7. Prepare the closing entries, and post to the T-accounts. 8. Prepare a post-closing trial balance.

The steps of the accounting cycle are presented below. Identify the correct order of the steps.

a. Journalize and post the closing entries.

b. Start with the beginning account balances.

c. Prepare the financial statements.

d. Compute the unadjusted balance in each account, and prepare the unadjusted trial balance.

e. Journalize and post adjusting entries.

f. Enter the unadjusted trial balance on the worksheet, and complete the worksheet (optional).

g. Prepare the adjusted trial balance.

h. Analyze and journalize transactions as they occur.

i. Post journal entries to the accounts.

j. Prepare the post-closing trial balance.

For each account listed, identify the category in which it would appear on a classified balance sheet.

6. Investments in stock of another company held long-term

Winters Landscape Services accrued \(4,000 of Salaries Expense at December 31. Winters paid the next payroll at January 10 of

\)6,000. This payment included the accrued amount at December 31, plus $2,000 for the first few days of January.

25A. Journalize the cash payment

Refer to the data in Short Exercise S4-1. Prepare Dalton’s classified balance sheet at December 31, 2018. Assume the Notes Payable is due on December 1, 2025. Use the report form.
See all solutions

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