Question

Lambda Corporation has current liabilities of $437,000, a quick ratio of 1.8, inventory turnover of 5.0, and a current ratio of 4.0. What is the cost of goods sold for Lambda Corporation?

Answer 1

Current assets = 4.0 × $437,000 = $1,748,000

Quick ratio = (Current assets - Inventory) / Current liabilities

1.8 = ($1,748,000 - Inventory) / $437,000

Inventory = $961,400

Inventory Turnover = Cost of goods sold / Inventory

Cost of goods sold = 5.0 × $961,400

Cost of goods sold = $4,807,000