ACCA Applied Knowledge · Management Accounting · Performance measurement - application
Harlan Co has a current ratio of 1.8 and an acid test (quick) ratio of 1.0. Current liabilities are $250,000. Inventory is therefore:
Inventory is $200,000. Current assets are 1.8 times $250,000, which is $450,000, and quick assets are 1.0 times $250,000, which is $250,000. The difference between them, $200,000, is inventory. Choosing $450,000 confuses total current assets with inventory.
- A$450,000
- B$200,000Correct
- C$250,000
- D$700,000
Explanation
Current assets = 1.8 x 250,000 = 450,000. Quick assets = 1.0 x 250,000 = 250,000. Inventory = 450,000 - 250,000 = 200,000. The 450,000 figure is total current assets, not inventory.
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