Pregunta
Multiple Choice Question Beta Company's current ratio is 1.0 and Zeta Company's current ratio is 1.2 . Which company is better able to pay its current liabilities? 68 Concepts completed Beta Company Zeta Company
Ask by O'Quinn Edwards. in the United States
Jan 26,2025
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Zeta Company is better able to pay its current liabilities.
Solución
Zeta Company is better able to pay its current liabilities.
**Explanation:**
- **Current Ratio** = Current Assets / Current Liabilities
- A higher current ratio indicates a stronger ability to cover short-term obligations.
In this case:
- **Beta Company** has a current ratio of **1.0**, meaning its current assets are equal to its current liabilities.
- **Zeta Company** has a current ratio of **1.2**, indicating it has 1.2 times more current assets than current liabilities.
Therefore, **Zeta Company** has a better liquidity position and is more capable of paying its current liabilities.
**Answer:**
Zeta Company
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Zeta Company is in a better position to pay its current liabilities. With a current ratio of 1.2, Zeta Company has $1.20 in current assets for every $1.00 in current liabilities, which indicates a stronger liquidity position compared to Beta Company's current ratio of 1.0, meaning it has just enough to cover its liabilities. A current ratio of 1.2 suggests that Zeta has a bit of a cushion, which can be crucial during financial crunch times, allowing for more flexibility and less risk of insolvency. In contrast, Beta Company is at a break-even point, where all current assets just cover its current liabilities, leaving no room for unexpected expenses!
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