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The current ratio can be defined as the financial metric that determines the liquidity of the business entity through the comparison of the current assets and current liabilities.

(1) Current ratio

$\begin{array}{rcl}\mathrm{Current}\mathrm{ratio}& =& \frac{\mathrm{Current}\mathrm{assets}}{\mathrm{Current}\mathrm{liabilities}}\\ & =& \frac{\$318,000}{\$87,000}\\ & =& 3.65\mathrm{times}\end{array}$

(2) Inventory turnover

$\begin{array}{rcl}\mathrm{Inventory}\mathrm{turnover}& =& \frac{\mathrm{Cost}\mathrm{of}\mathrm{goods}\mathrm{sold}}{\mathrm{Average}\mathrm{inventory}}\\ & =& \frac{\$820,000}{{\displaystyle \frac{\$200,000+\$170,000}{2}}}\\ & =& \frac{\$820,000}{\$185,000}\\ & =& 4.43\mathrm{times}\end{array}$

(3) Accounts receivable turnover

$\begin{array}{rcl}\mathrm{Account}\mathrm{receivable}\mathrm{turnover}& =& \frac{\mathrm{Net}\mathrm{sales}}{\mathrm{Average}\mathrm{accounts}\mathrm{receivable}}\\ & =& \frac{\$1,400,000}{\$95,000}\\ & =& 14.73\mathrm{times}\end{array}$

(4) Earnings per share

$\begin{array}{rcl}\mathrm{Earnings}\mathrm{per}\mathrm{sale}& =& \frac{\mathrm{Net}\mathrm{income}}{\mathrm{Outstanding}\mathrm{common}\mathrm{shares}}\\ & =& \frac{{\displaystyle \frac{\$410,000}{\$260,000}}}{5}\\ & =& 7.88\mathrm{times}\end{array}$

(5) Profit margin on sales

$\begin{array}{rcl}\mathrm{Profit}\mathrm{margin}\mathrm{on}\mathrm{sales}& =& \frac{\mathrm{Net}\mathrm{income}}{\mathrm{Sales}}×100\\ & =& \frac{\$410,000}{\$1,400,000}×100\\ & =& 29.28\%\end{array}$

(6) Return on assets on December 31, 2017

$\begin{array}{rcl}\mathrm{Return}\mathrm{on}\mathrm{assets}& =& \frac{\mathrm{Net}\mathrm{income}}{\mathrm{Average}\mathrm{total}\mathrm{assets}}×100\\ & =& \frac{\$410,000}{\$488,000}×100\\ & =& 84\%\end{array}$

1. Writing off uncollectible receivables will not affect the current ratio because these receivables are already included in the allowance for doubtful accounts when estimations for bad debts are made.
2. The purchasing of capital stock for cash will reduce the cash balance and the current assets of the company. Therefore, it will reduce or weaken the current ratio.
3. Paying notes payable will reduce the current assets and liabilities by the same amount and it will increase the current ratio of the business entity.
4. Payment made to receivables will not have any effect on the current ratio because both current assets and current liabilities will remain the same.
5. When the equipment is purchased on account current liabilities increases which will weaken the current ratio.
6. Settlement of account by paying a short-term note will not affect the current liability and current assets of the business entity. Therefore, it will not have any effect on the current ratio of the business entity.