The calendar year-end adjusted trial balance for Blessinger Co. follows: BLESSINGER CO.

Question

Adjusted Trial Balance
December 31
Cash$ 112,000?Accounts receivable27,000?Prepaid rent15,000?Prepaid Insurance9,000?Office supplies3,300?Office equipment38,000?Accumulated depreciation-Equipment?$3,200Building288,000?Accumulated depreciation-Building?42,000Land700,000?Accounts payable?25,800Salaries payable?14,500Interest payable?2,500Long-term note payable?72,000Common stock?200,000Retained earnings?710,000Dividends200,500?Service fees earned?430,800Salaries expense90,000?Insurance expense5,200?Rent expense5,000?Depreciation expense-Equipment800?Depreciation expense-Building7,000?Totals$1,500,800$1,500,800Required:(a) Determine the amounts of current assets and current liabilities. (Note: A $9,000 installment on the long-term note payable is due within one year.)(b) Calculate the current ratio. Comment on the ability of Blessinger Co. to meets its short-term debts.

What will be an ideal response?

Answer 1

(a) Current assets = Cash + Accounts Receivable + Prepaid Rent + Prepaid Insurance + Office Supplies
$112,000 + 27,000 + $15,000 + $9,000 + $3,300 = $166,300
Current liabilities = Accounts Payable + Salaries Payable + Interest Payable + Current Portion of Long-term Debt 
$25,800 + 14,500 + $2,500 + $9,000 = $51,800

(b) $166,300/$51,800 = 3.2
Blessinger Co. has a current ratio of 3.2 to 1, which means it has more than three times the current assets as current liabilities. It should have no difficulty paying its short-term debts since cash alone is more than current liabilities.