Tuchman Corporation has sales of $1,200,000 and an inventory turnover of 20. The firm’s current ratio is 4.0, while its quick ratio is 2.5. What are Tuchman’s current assets?
Answer:
Inventory Turnover = Sales / Inventory
20 = $1,200,000/ Inventory
Inventory = $60,000
Let Current Liabilities be “$x”
Current Ratio = Current Assets / Current Liabilities
4.0 = Current Assets / $x
Current Assets = $4.0x
Quick ratio = (Current Assets – Inventory) / Current
Liabilities
2.5 = ($4.0x - $60,000) / $x
$2.5x = $4.0x - $60,000
$60,000 = $1.5x
x = $40,000
Current Assets = $4.0x
Current Assets = $4.0 * $40,000
Current Assets = $160,000
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