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

The current ratio is calculated as current assets divided by current liabilities. Given a current ratio of 1.2 and current liabilities of $250, the current assets are $250 * 1.2 = $300. The quick ratio is calculated as (current assets - inventory) / current liabilities. Given a quick ratio of 0.81, we have ($300 - inventory) / $250 = 0.81. Solving for inventory, inventory = $300 - ($250 * 0.81) = $300 - $202.5 = $97.5.

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