# Current Ratio

Loose Truck, Inc. has cash of \$100,000, accounts receivable of \$500,000, and inventory of \$400,000. The firm has accounts payable of \$200,000, notes payable of \$300,000, and long-term debt of \$200,000. The firm wishes to increase its current ratio to 2.4. How much would current assets or current liabilities need to change in order to increase the current ratio to 2.4? Current assets Current liabilities A. +\$200,000 -\$83,333 B. +\$200,000 +\$83,333 C. +\$680,000 -\$83,333 D. +\$680,000 +\$83,333

I’m going to guess A. Ratio needs to increase, thus assets need to rise, or liabilities need to fall.

B? @ ~ 2.5

The answer is A but how da heck can we reach 2.4 based on those answers. Must be a typo…

B is more like 2.057, A is like 2.88, and so is D, while C is 4.03. Must be a typo.

CA/CL CA = 1,000,000 CL = 500,000 (LT debt is not current) So either add 200,000 to CA or subtract 83k from CL to adjust the ratio from 2, to 2.4.

B ~ 2.06 D ~ 2.88

Assets: 500,000 * 2.4 = 1,2000,000 - 1,000,000 = 200,000 Liabilities: 1,000,000 / 2.4 = 416,667 - 500,000 = -83.333

Oh, “OR” is the key word:))

Need to read the question carefully! Lesson learned!