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?

Question

Quizplus · Accepted Answer

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

Quick Ratio = (Current Assets - Inventories) / Current Liabilities 
1.0 = ($15,000 - Inventories) / $10,000 
$10,000 = $15,000 - Inventories 
Inventories = $15,000 - $10,000 = $5,000

A Firm's Current Ratio Is 1