Question

Brenda's Bar and Grill has current liabilities of $15 million. Cash makes up 10 percent of the current assets and accounts receivable makes up another 40 percent of current assets. Brenda's current ratio is 2.1 times.
Calculate the value of inventory listed on the firm's balance sheet. (Enter your answer in millions to 2 decimal places.

Answer 1

Answer:

The value of inventory is $15.75 million as shown in the calculation below.

Explanation:

In order to calculate the inventory of Brenda's Bar and Grill we substitute for the values of current ratio and liabilities into the current ratio formula with current assets, the known taken as x.

Current ratio=current assets/current liabilities

2.1=x/$15m

x=$15m*2.1

x=31.5 m

Hence current assets is $31.5

Since current is comprises of  10% cash ,40% accounts receivable,hence inventory has the balance of 50%.

As a result inventory is 50%*$31.5

Inventory is $15.75

The company might need to calculate quick ratio to actually confirm  its short term liquidity position.