A firm's long term assets = $100,000, total assets =
$400,000, inventory = $50,000 and current liabilities = $200,000. Compute the current ratio and the quick ratio

Question

BlackTom AI · Accepted Answer

First, let’s restate what’s being asked and identify the given numbers for clarity. The problem provides: long-term assets = $100,000, total assets = $400,000, inventory = $50,000, and current liabilities = $200,000. We need to compute two liquidity measures: the current ratio and the quick ratio, and then compare with the provided options.
Option A says current ratio = 0.5 and quick ratio = 1.25. To evaluate, calculate current assets: total assets minus long-term assets = 400,000 − 100,000 = 300,000. The current ratio is current assets divided by current liabilities: 300,000 / 200,000 = 1.5, not 0.5. Therefore, this option misstates the current ratio right away, making it incorrect. 
Option B states current ratio = 1.0 and quick ratio = 2.0. Using the same current assets of 300,000 and current liabilities of 200,000, the current ratio is 1.5, not 1.0, so this option is incorrect due to the wrong current ratio value. 
Option C states current ratio = 1.5 and quick ratio = 1.25. This aligns with the calculations: current ratio = 300,000 / 200,000 = 1.5, and quick ratio = (current assets − inventory) / current liabilities = (300,000 − 50,000) / 200,000 = 250,000 / 200,000 = 1.25. This option matches both computed values, so it appears correct. 
Option D claims current ratio = 2.5 and quick ratio = 2.0. The current ratio would require current assets of 2.5 × 200,000 = 500,000, but we only have 300,000 in current assets, so 2.5 is inconsistent with the data; quick ratio of 2.0 would require even higher liquidity than feasible here. Thus, this option is inconsistent with the given numbers and is incorrect.
In summary, the only option that coherently reflects the supplied figures is the one stating current ratio 1.5 and quick ratio 1.25. The other options either misstate the computed ratios or rely on incorrect interpretations of current assets and liabilities, leading to arithmetic or conceptual errors.

25_2 FIN401 Financial Management

A firm's long term assets = $100,000, total assets = $400,000, inventory = $50,000 and current liabilities = $200,000. Compute the current ratio and the quick ratio

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