Question

If ACTII Costumes has a current ratio of 12:1, its liabilities total $40,00, and its cash and accounts receivable total $140,000, how much inventory do they have?

Answer 1

Answer:  Current ratio = Current assets/Current liabilities

                         12           = Current assets/$40,000

              Current assets = 12 x $40,000

              Current assets = $480,000

            Thus, inventory = $480,000 - $140,000

                       Inventory = $340,000

Explanation: Current ratio is the ratio of current assets to current liabilities. In this question, current ratio and current liabilities were given.  Thus, current assets would be the subject of the formula.

After obtaining the value of current assets, then, the value of cash and accounts receivable would be deducted so as to obtain the value of inventory.