A company with a current ratio of 2.0, a quick ratio of 1.4, and current liabilities of $5 billion, has inventory closest to:
A) $2 billion.
B) $3 billion.
C) $5 billion.
D) $7 billion.

Question

Quizplus · Accepted Answer

The current ratio is calculated as Current Assets / Current Liabilities = 2.0, and the quick ratio is calculated as (Current Assets - Inventory) / Current Liabilities = 1.4. Given that Current Liabilities are $5 billion, we can set up the equations: Current Assets = 2 * $5 billion = $10 billion, and (Current Assets - Inventory) = 1.4 * $5 billion = $7 billion. Solving these equations, we find that Inventory = Current Assets - $7 billion = $10 billion - $7 billion = $3 billion.

A Company with a Current Ratio of 2