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18 November, 20:09

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

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Answers (1)
  1. 18 November, 20:18
    0
    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
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