Answer (D) is correct . The current ratio equals current assets divided by current liabilities. This company’s current assets consist of cash, accounts receivable, inventory, and prepaid expenses, a total of $740,000 ($100,000 + $200,000 + $400,000 + $40,000). The current liabilities consist of accounts payable, interest payable, and notes payable, which total $140,000 ($80,000 + $10,000 + $50,000). Thus, the current ratio is 5.29 ($740,000 ÷ $140,000).
Answer (A) is incorrect because Treating bonds payable as a current liability results in 1.68.
Answer (B) is incorrect because The quick ratio is 2.14.
Answer (C) is incorrect because Excluding prepaid expenses from current assets results in 5.00.
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The company has an operating cycle of 6 months.The current ratio for CPZ Enterprises is The current ratio for CPZ Enterprises is
