Asked by Nicholas Maynard on Jun 10, 2024
Verified
The Seabury Corporation has a current ratio of 4.2 and an acid-test ratio of 3.9. The corporation's current assets consist of cash, marketable securities, accounts receivable, and inventories. Inventory equals $18,000. Seabury Corporation's current liabilities must be: (Round your intermediate calculations to 1 decimal place.)
A) $18,000
B) $234,000
C) $60,000
D) $5,400
Current Ratio
A liquidity ratio that measures a company's ability to pay off its short-term liabilities with its short-term assets.
Acid-Test Ratio
A financial metric comparing a company's most liquid assets (excluding inventory) to its current liabilities, used to assess short-term solvency.
Marketable Securities
These are liquid financial instruments that can easily be converted into cash at their current value in the financial markets.
- Assess the impact of various transactions on liquidity measures, including the current ratio and acid-test (quick) ratio.
Verified Answer
Current Ratio = Current Assets / Current Liabilities
4.2 = (Cash + Marketable Securities + Accounts Receivable + Inventory) / Current Liabilities
Acid-Test Ratio = (Current Assets - Inventory) / Current Liabilities
3.9 = (Cash + Marketable Securities + Accounts Receivable) / Current Liabilities
Let's solve these two equations simultaneously to find the value of Current Liabilities.
4.2 = (Cash + Marketable Securities + Accounts Receivable + Inventory) / Current Liabilities
3.9 = (Cash + Marketable Securities + Accounts Receivable) / Current Liabilities
Subtracting the second equation from the first, we get:
0.3 = Inventory / Current Liabilities
Replacing the value of Inventory with $18,000, we get:
0.3 = 18,000 / Current Liabilities
Solving for Current Liabilities, we get:
Current Liabilities = 18,000 / 0.3 = $60,000
Therefore, the best choice is C, $60,000, as this is the calculated value of Seabury Corporation's current liabilities.
Learning Objectives
- Assess the impact of various transactions on liquidity measures, including the current ratio and acid-test (quick) ratio.
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