Current Ratio Calculation for Service Business

Steps:

• Identify current assets (cash, receivables, etc.) and exclude inventory since none exists.
• Identify current liabilities (payables, short-term debt).
• Compute current ratio: current assets divided by current liabilities.
• Compare ratio to standard benchmarks (e.g., >1 indicates liquidity).

Why C is correct:

• C matches the current ratio formula (assets/liabilities) applied without inventory, yielding a value like 2:1 for solvency.

Why the others are wrong:

• A: Ignores no-inventory fact, inflating assets incorrectly.
• B: Uses quick ratio, which subtracts inventory (unnecessary here).
• D: Applies debt-to-equity ratio, irrelevant to current liquidity.

Not enough information for exact numbers, but C fits standard calculation.

Final answer: C