Question

Determine sales if current ratio 1.4 and acid test ratio 1.2, current liability 1600 and inventory turnover 8

Answer 1

Explanation:

Current ratio = Current asset /current liability

1.4 = current asset / 1600

Current asset = 1.4×1600= 2240

Acid test ratio = CURRENT ASSET -

INVENTORY /CURRENT LIABILITY

1.2 = 2240 -INVENTORY / 1600

1.2×1600 -2240 = inventory

inventory = 320

Average inventory = 320 /2 = 160

Inventory turnover = net sales / average inventory

8 = Net sales / 160

Net sales = 160× 8

sales = 1280