Question

The seabury Corporation has a current ratio of 3.5 and an acid-test ratio of 2.8. The Corporations current assets consist of cash, marketable securities, accounts receivable, and inventories. Inventory equals $49,000. Seabury Corporation's current liabilities must be:
A. $70,000
B. $100,000
C. $49,000
D. $125,000

Answer 1

Answer:

The correct answer is A

Explanation:

The current liabilities is computed as:

Current Assets (CA) = Quick assets (QA)+ Inventory (I)

CA = QA + $49,000

Acid test ratio = Quick assets / Current Liabilities (CL)

2.8 = QA / CL

QA = 2.8 × CL                              

Current Ratio (CR) = CA / CL

3.5 = CA / CL

Putting CA = QA + Inventory

3.5 = ( QA + $49,000) / CL

Now, Putting QA = 2.8 × CL

So,

3.5 = [( 2.8 × CL ) + $49,000] / CL

3.5 = 2.8 CL / CL + $49,000 / CL

3.5 = 2.8 + ($49,000 / CL)

3.5 - 2.8 = $49,000 / CL

0.7 = $49,000 / CL

CL = $49,000 / 0.7

CL = $70,000