Ernie's Mufflers Has Current Liabilities of $45 Million

question 124

Multiple Choice

Ernie's Mufflers has current liabilities of $45 million. Cash makes up 5 percent of the current assets and accounts receivable makes up another 50 percent of current assets. Ernie's current ratio = 1.5 times. What is the value of inventory listed on the firm's balance sheet?

• A)$13.75m.
• B)$20.25m.
• C)$30.375m.
• D)$33.75m.Current ratio = 1.5 = Current assets/$45m => Current assets = 1.5 *$45m = $67.5m.Cash = 0.05 * $67.5m = $3.375m.Accounts receivable = 0.50 * $67.5m = $33.75m.

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