A Montreal ﬁrm has current liabilities of $250, a current ratio of 1.2, and a quick ratio of 0.81. Calculate the level of inventory for this ﬁrm.
A) $45
B) $50
C) $97.5
D) $120
E) $200

Question

Quizplus · Accepted Answer

Current ratio = Current Assets / Current Liabilities
1.2 = (Inventory + Quick Assets) / $250 
Quick ratio = (Current Assets - Inventory) / Current Liabilities 
0.81 = (Quick Assets) / $250

Solving the equations simultaneously:
Quick Assets = 0.81 x $250 = $202.5 
Current Asset = $250 x 1.2 = $300 
Therefore, Inventory = Current Asset - Quick Assets 
Inventory = $300 - $202.5 = $97.5

Thus, the level of inventory for this firm is $97.5, which is choice C.

A Montreal ﬁRm Has Current Liabilities of $250, a Current