Question

Current and Quick Ratios Ace Industries has current assets equal to $2 million. The company's current ratio is 2.0, and its quick ratio is 1.5. What is the firm's level of current liabilities? What is the firm's level of inventories? Do not round intermediate calculations. Round your answers to the nearest dollar.

Current liabilities: $

Inventories: $

Answer 1

	Current ratio = Current Assets / Current liabilities
	Quick ratio = Liquid assets/ Current liabilities
	Liquid Assets = which are readily convertible to cash
1)	Given that,
	Current ratio = 2
	Therefore,
	Current Assets / Current Liabilitites = 2
	Current liabilities = Current Assets /2
	Current liabilities = $2 million/2
	Current liabilitites= $1 million.
2)	Given that,
	Quick ratio = 1.5
	Therefore,
	Liquid Assets / Current liabilitities = 1.5
	(Current Assets- Inventories)/ Current liabilities = 1.5
	$2 million - Inventories = 1.5 * $1 million
	Inventories = $0.5 million