Answer (A) is correct . Ending inventory can be calculated using the following relationships: Acid test ratio = Quick assets ÷ Current?liabilities ? 2.6 = $208,000 ÷ Current?liabilities Current liabilities × 2.6 = $208,000 Current liabilities = $208,000 ÷ 2.6 = $80,000 Current assets ÷ Current liabilities = Current ratio Current assets ÷ $80,000 = 3.5 Current assets = $280,000 Assuming that Tilghman has no prepaid expenses, inventory is the only difference between current assets and quick assets. Thus, the ending balance of inventory must be $72,000 ($280,000 – $208,000).
Answer (B) is incorrect because Inventory equals the difference between current assets and quick assets (assuming no prepaid expenses). Multiplying the current liabilities by the current ratio gives the current assets. Subtracting the quick assets from the current assets gives the inventory balance.
Answer (C) is incorrect because Inventory equals the difference between current assets and quick assets (assuming no prepaid expenses). Multiplying the current liabilities by the current ratio gives the current assets. Subtracting the quick assets from the current assets gives the inventory balance.
Answer (D) is incorrect because Inventory equals the difference between current assets and quick assets (assuming no prepaid expenses). Multiplying the current liabilities by the current ratio gives the current assets. Subtracting the quick assets from the current assets gives the inventory balance.
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Tilghman Company’s inventory balance at December?31 is
