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The total sales of Shangqing company this year are $1,000,000, the inventory turnover is 10, the...

The total sales of Shangqing company this year are $1,000,000, the inventory turnover is 10, the current ratioIs 3, the quick ratio is 2.5, how much is the current assets of Shangqing Company?

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Answer #1

Solution:-

Inventory Turnover = Sales ÷ Inventory

10 = 1000000 ÷ Inventory

Inventory = 100000

Quick Ratio = Current Assets - Inventory/ Current liabilities

2.5 = Current Assets - 100000 / Current liabilities

Or

2.5 = Current assets/Current Liabilities - 100000/ Current liabilities

[Current ratio = 3 (Given) ]

Hence,

2.5 = 3 - 100000/ Current liabilities

2.5 × Current liabilities + 100000 = 3 × Current liabilities

100000 = 3 Current liabilities - 2.5 Current liabilities

100000 = 0.5 Current liabilities

Current liabilities = 100000/ 0.5 = 200000

Current Ratio = Current Assets ÷ Current liabilities

3 = Current Assets ÷ 200000

Current Assets = 200000 × 3 = 600000

Current Assets = 600000

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