Question

Highly Suspect Corp. has current liabilities of $436,000, a quick ratio of .75, inventory turnover of 5.1, and a current ratio of 1.2. What is the cost of goods sold for the company? (Do not round intermediate calculations.)

Answer 1

HI,

Here current liabilities = $436,000

quick ratio = 0.75

inventory turnover = 5.1

current ratio = 1.2

we know that current ratio = current asset/current liabilities

1.2 = current asset/436000

current asset = 1.2*436000 = $523,200

quick ratio = (current asset-inventory)/current liabilities

0.75 = (523200-inventory)/436000

523200-inventory= 327000

inventory = 523200-327000

inventory = $196,200

so now inventory turnover = cost of goods sold/inventory

cost of goods sold = inventory turnover*inventory

=5.1*196200 = $1,000,620

Thanks