Cotuit Company has a current ratio of 3.2 and an acid-test ratio of 2.4.The company's current assets consist of cash,marketable securities,accounts receivable,and inventory.The company's inventory is $40,000.Cotuit Company's current liabilities must be:
A)$40,000
B)$120,000
C)$50,000
D)$32,000

Question

Quizplus · Accepted Answer

Current assets = Quick assets + Inventory
Current assets = Quick assets + $40,000
Acid-test ratio = Quick assets F1F1F1S1F1F1F10 Current liabilities
2.4 = Quick assets F1F1F1S1F1F1F10 Current liabilities
Quick assets = 2.4 F1F1F1S1F1F1F10 Current liabilities
Current ratio = Current assets F1F1F1S1F1F1F10 Current liabilities
3.2 = Current assets F1F1F1S1F1F1F10 Current liabilities
3.2 = (Quick assets + $40,000)F1F1F1S1F1F1F10 Current liabilities
3.2 = (2.4 F1F1F1S1F1F1F10 Current liabilities + $40,000)F1F1F1S1F1F1F10 Current liabilities
3.2 = 2.4 + $40,000 F1F1F1S1F1F1F10 Current liabilities
(3.2 - 2.4)= $40,000 F1F1F1S1F1F1F10 Current liabilities
0.8 = $40,000 F1F1F1S1F1F1F10 Current liabilities
Current liabilities = $40,000 F1F1F1S1F1F1F10 0.8 = $50,000

Cotuit Company Has a Current Ratio of 3