Liquidity Ratios Burt's TVs has current liabilities of $26 million. Cash makes up 50 percent of the current assets and accounts receivable makes up another 30 percent of current assets. Burt's current ratio = .95 times. What is the value of inventory listed on the firm's balance sheet? (Do not round intermediate steps.)

Burt's current asset includes Cash, Account Receivable and Inventory. As stated in the question, the percentage of each item in the Current Asset Account is given as followed:

Cash 50%, Account Receivable: 30%, Inventory 20% (i.e 100% - 50% - 30%).

We have: Current ratio = Current asset/ Current Liabilities

Apply in the question, we have:

Current Asset/ Current Liabilities = Current ratio = 0.95 => Current Asset = Current Liabilities x 0.95 = $26,000,000 x 0.95 = $24,700,000 .

As Inventory accounts for 20% of the Current Asset Account balance, the value of inventory in the Balance Sheet will be: Current Asset Account balance x 20% = $24,700,000 x 20% = $4,940,000 .

Adedokuntunde6 Adedokuntunde6 · Answer 2 · 2019-11-18T22:25:11+01:00

Answer: The answer is $4,940,000

Explanation:

Since current ratio = Current Asset / Current Liabilities

Since current ratio = 0.95 times

0.95 = Current Asset / 26,000,000

We cross multiply

Current Asset = 0.95 × 26,000,000

= 24,700,000

Since cash = 50% and Account receivable = 30%, 50 + 30 = 80

100% - 80% = 20%

Inventory = 20/100 × 24,700,000

= 4,940,000

Therefore the value of inventory listed on the firm balance sheet = $4,940,000