Question

Liquidity Ratios Burt's TVs has current liabilities of $26 million. Cash makes up 50 percent of the current assets and accounts receivable makes up another 30 percent of current assets. Burt's current ratio = .95 times. What is the value of inventory listed on the firm's balance sheet? (Do not round intermediate steps.)

Answer 1

Answer: The answer is $4,940,000

Step-by-step explanation:

Since current ratio = Current Asset / Current Liabilities

Since current ratio = 0.95 times

0.95 = Current Asset / 26,000,000

We cross multiply

Current Asset = 0.95 × 26,000,000

= 24,700,000

Since cash = 50% and Account receivable = 30%, 50 + 30 = 80

100% - 80% = 20%

Inventory = 20/100 × 24,700,000

= 4,940,000

Therefore the value of inventory listed on the firm balance sheet = $4,940,000

Answer 2

The answer is $4.94 million.

Step-by-step explanation:

Burt's current asset includes Cash, Account Receivable and Inventory. As stated in the question, the percentage of each item in the Current Asset Account is given as followed:

Cash 50%, Account Receivable: 30%, Inventory 20% (i.e 100% - 50% - 30%).

We have: Current ratio = Current asset/ Current Liabilities

Apply in the question, we have:

Current Asset/ Current Liabilities = Current ratio = 0.95 => Current Asset = Current Liabilities x 0.95 = $26,000,000 x 0.95 = $24,700,000 .

As Inventory accounts for 20% of the Current Asset Account balance, the value of inventory in the Balance Sheet will be: Current Asset Account balance x 20% = $24,700,000 x 20% = $4,940,000 .