Two companies have an identical amount of current assets and current liabilities.Melia Inc.has 40% of its current assets invested in inventory, whereas Tesoro Corp.has 30% of its current assets invested in inventory.Which of the following statements is true?
A)Melia will have the higher quick ratio.
B)Melia will have the higher current ratio.
C)The companies are equally liquid because their current ratios are the same.
D)Melia is less liquid than Tesoro.

Question

Quizplus · Accepted Answer

Since Melia Inc. has a higher percentage of its current assets tied up in inventory compared to Tesoro Corp., it means Melia has less liquid assets available to cover its current liabilities. The quick ratio, which excludes inventory from current assets, would be lower for Melia, indicating lower liquidity compared to Tesoro.

Two Companies Have an Identical Amount of Current Assets and Current