Determine the ending balance in inventories and total current liabilities.

The current asset section of Stibbe Pharmaceutical Company's balance sheet included cash of $20,000 and accounts receivable of $40,000. The only other current asset is inventories. The company's current ratio is 2.0 and its acid-test ratio is 1.5. Determine the ending balance in inventories and total current liabilities.

Solutions

Expert Solution

Acid-test ratio = (cash + short-term investments + A/R) ÷ current liabilities

1.5 = ($20,000 + 0 + 40,000) ÷ current liabilities

1.5 x current liabilities = $60,000

current liabilities = $60,000 ÷ 1.5

current liabilities = $40,000

Current ratio = current assets ÷ current liabilities

2.0 = current assets ÷ $40,000

current assets = $40,000 x 2.0

current assets = $80,000

$80,000 – 20,000(cash) – 40,000(A/R) = $20,000 inventories.

The ending balance in inventories is $20,000 and the total current liabilities is $40,000.

Renze Joy Candido answered 1 year ago

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