Answer (D) is correct . The only major difference between the current ratio and the quick ratio is the inclusion of inventory in the numerator. If cost of sales is $2 million and inventory turns over 8 times per year, then average inventory is $250,000 ($2,000,000 ÷ 8). Since the only difference between the two ratios is inventory, then inventory must equal .5 (2.5 – 2.0) times current liabilities; therefore, current liabilities are $500,000. Thus, current assets divided by $500,000 equals 2.5. Therefore, current assets must equal $1,250,000 (2.5 × $500,000).
Answer (A) is incorrect because The amount of quick assets is $1,000,000.
Answer (B) is incorrect because The amount of current liabilities is $500,000.
Answer (C) is incorrect because Adding inventory to current assets results in $1,500,000.
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