Harwichport Company has a current ratio of 3.5 to 1 and an acid-test ratio of 2.8 to 1.Current assets equal $175,000 of which $5,000 consists of prepaid expenses.Harwichport Company's inventory must be:
A) $30,000.
B) $35,000.
C) $40,000.
D) $50,000.

Question

Quizplus · Accepted Answer

Current assets - prepaid expenses = $175,000 - $5,000 = $170,000Current ratio = current assets / current liabilities = 3.5Current liabilities = current assets / 3.5 = $170,000 / 3.5 = $48,571.43Acid-test ratio = (current assets - inventory) / current liabilities = 2.8Inventory = current assets - (current liabilities * acid-test ratio) = $170,000 - ($48,571.43 * 2.8) = $30,000

Harwichport Company Has a Current Ratio of 3