Question

The current asset section of Stibbe Pharmaceutical Company’s balance sheet included cash of $34,000 and accounts receivable of $54,000. The only other current asset is inventory. The company’s current ratio is 2.5 and its acid-test ratio is 2.0. Determine the ending balance in inventory and total current liabilities.

Answer 1

Answer:

Ending balance in inventory= $22,000

Current liabilities= $88,000

Explanation:

The current assets section of stibblr pharmaceutical company included cash of $34,000 and accounts receivables of $54,000

The company's current ratio is 2.5

The acid test ratio is 2.0

Acid test ratio = cash + account receivables /current liabilities

2.0= ($34,000+$54,000)/current liabilities

2.0= 88,000/current liabilities

Current liabilities = 88,000/2

= $44,000

Current ratio= cash + account account receivables + inventory /current liabilities

2.5= $34,000+$54,000 + inventory/$44,000

2.5= $88,000+Inventory /44,000

2.5×44,000= 88,000 + inventory

110,000= 88,000 + Inventory

Inventory = $110,000-88,000

= $22,000

Hence the current liabilities is $88,000 and inventory is $22,000