Brewster Company has an acid-test ratio of 1.5 and a current ratio of 2.5.Current assets equal $200,000,of which $10,000 is prepaid expenses.The company's current assets consist of cash,marketable securities,accounts receivable,prepaid expenses,and inventory.Brewster Company's inventory must be:
A)$30,000
B)$110,000
C)$70,000
D)$80,000

Question

Quizplus · Accepted Answer

Current ratio = Current assets F1F1F1S1F1F1F10 Current liabilities
2.5 = $200,000 F1F1F1S1F1F1F10 Current liabilities
Current liabilities = $200,000 F1F1F1S1F1F1F10 2.5 = $80,000
Acid-test ratio = Quick assets F1F1F1S1F1F1F10 Current liabilities
1.5 = Quick assets F1F1F1S1F1F1F10 $80,000
Quick assets = 1.5 F1F1F1S1F1F1F10 $80,000 = $120,000
Current assets = Quick assets + Inventory + Prepaid expenses
$200,000 = $120,000 + Inventory+ $10,000
Inventory = $200,000 - $120,000 - $10,000 = $70,000

Brewster Company Has an Acid-Test Ratio of 1