Burt's TVs has current liabilities of $25 million. Cash makes up 40 percent of the current assets and accounts receivable makes up another 20 percent of current assets. Burt's current ratio = 0.85 times. What is the value of inventory listed on the firm's balance sheet?
A) $4.25m.
B) $8.5m.
C) $10m.
D) $40m.

Question

Quizplus · Accepted Answer

The current ratio is calculated as Current Assets / Current Liabilities. Given the current ratio is 0.85, we can set up the equation 0.85 = Current Assets / $25m. Solving for Current Assets gives us $21.25m. Since Cash is 40% and Accounts Receivable is 20% of Current Assets, they total 60% together, leaving 40% for Inventory. 40% of $21.25m is $8.5m, which is the value of inventory.

Burt's TVs Has Current Liabilities of $25 Million