Question

Lee Company has a current ratio of 2.65. The acid test ratio is 2.01. The current liabilities of Lee are $45,000. The dollar amount of merchandise inventory is: (Assume no prepaid expenses) $28,008 $28,800 $90,450 $90,540 None of these

Answer 1

Given:
Current ratio: 2.65
acid test ratio: 2.01
current liabilities: $45,000

Current ratio = current asset / current liabilities
2.65 = current assets / 45,000
2.65 * 45,000 = current assets
119,250 = current assets

Acid test ratio = (current assets - stocks) / current liabilities
2.01 = (current assets - stocks) / 45,000
2.01 * 45,000 = current assets - stocks
90,450 = current assets - stocks

119,250 - 90,450 = 28,800 is the dollar amount of merchandise inventory.