A firm's current ratio is 1.5 and its quick ratio is 1.0. If its current liabilities are $10,000, what are its inventories?
A) $ 5,000
B) $10,000
C) $15,000
D) $20,000

Question

Quizplus · Accepted Answer

Current Ratio = Current Assets / Current Liabilities
1.5 = Current Assets / $10,000
Current Assets = $15,000

Quick Ratio = (Current Assets - Inventories) / Current Liabilities
1 = ($15,000 - Inventories) / $10,000
$10,000 = $15,000 - Inventories
Inventories = $5,000

Therefore, the inventories are $5,000.

A Firm's Current Ratio Is 1