Dennisport Corporation has an acid-test ratio of 2.5.It has current liabilities of $40,000 and noncurrent assets of $70,000.The corporation's current assets consist of cash,marketable securities,accounts receivable,prepaid expenses,and inventory; it has no short-term notes receivable.If Dennisport's current ratio is 3.1,its inventory and prepaid expenses must be:
A) $12,400
B) $24,000
C) $30,000
D) $40,000

Question

Quizplus · Accepted Answer

Current ratio = Current assets ÷ Current liabilities
3.1 = Current assets ÷ $40,000
Current assets = $124,000
Acid-test ratio = (Cash + Marketable securities + Accounts receivable + Short-term notes receivable) ÷ Current liabilities
2.5 = (Cash + Marketable securities + Accounts receivable + 0) ÷ $40,000
Cash + Marketable securities + Accounts receivable = $100,000
Current assets = Cash + Marketable securities + Accounts receivable + Prepaid expenses + Inventory
$124,000 = $100,000 + Prepaid expenses + Inventory
Prepaid expenses + Inventory = $24,000

Dennisport Corporation Has an Acid-Test Ratio of 2