Question

The Dalbay Company had a Quick Ratio of 1.4, a Current Ratio of 3.0, and Inventory Turnover of 6X, total current assets of $675,000 and cah of $100,000 at the end of the year. What were Dalbay's annual sales for the year?

Answer 1

Current Ratio = Current Assets / Current Liabilities

3 *  Current Liabilities = Current Assets

3 *Current Liabilities = $ 675,000

or Current Liabilities = $ 675,000 / 3

= $ 225,000

Quick Ratio = ( Current Assets - Inventory) /Current Liabilities

1.4 = (3 *  Current Liabilities - Inventory) /   Current Liabilities

or 1.4 * Current Liabilities = (3 *  Current Liabilities - Inventory)

or Inventory = 3 *  Current Liabilities - 1.4 * Current Liabilities

or Inventory = 1.6  Current Liabilities

= 1.6 * 225,000

= $ 360,000

Inventory Turnover = Annual Sales / Inventory

6X = Annual Sales / $ 360,000

or $ 360,000 * 6 X = Annual Sales

or Annual Sales = $ 2,160,000

Hence the correct answer is $ 2,160,000