Lee Company has a current ratio of 2.65. The acid test ratio is 2.01. The current liabilities of Lee are $45,000. The dollar amount of merchandise inventory is (assume no prepaid expenses):
A)$28,008
B)$28,800
C)$90,450
D)$90,540
E)None of these

Question

Quizplus · Accepted Answer

The current ratio is calculated as Current Assets / Current Liabilities. With a current ratio of 2.65 and current liabilities of $45,000, the current assets are 2.65 * $45,000 = $119,250. The acid test ratio is calculated as (Current Assets - Inventory) / Current Liabilities. With an acid test ratio of 2.01, (Current Assets - Inventory) = 2.01 * $45,000 = $90,450. Therefore, Inventory = $119,250 - $90,450 = $28,800.

Lee Company Has a Current Ratio of 2