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24 August, 09:09

The following financial information is taken from the balance sheets of the Peter Company and the Paul Company:

Peter Paul

Current assets $200,000 $50,000

Current liabilities 40,000 20,000

Calculate the current ratio for each company.

Round answers to two decimal places, when appropriate.

Peter Company Answer=?

Paul Company Answer=?

Which firm has a higher level of liquidity? = ?

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  1. 24 August, 09:26
    0
    Current ratios:

    Peter Company Answer = 5

    Paul Company Answer = 2.5

    Peter company has the higher liquidity than the Paul company. Its current ratio is double than the Paul's.

    Explanation:

    Company : Peter Paul

    Current assets $200,000 $50,000

    Current liabilities $40,000 $20,000

    To calculate Liquidity we will us following ratio formula:

    Current Ratio = Current Assets / Current Liabilities

    Peter Company

    Current Ratio = $200,000 / $40,000 = 5

    Paul Company

    Current Ratio = $50,000 / $20,000 = 2.5

    Peter company has the higher liquidity than the Paul company
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