 # Question & Answer: Dartmouth Company has a quick ratio of 2.5 to 1. It has current liabilities of \$40,000 and noncurrent assets of \$70,000. If…..

Dartmouth Company has a quick ratio of 2.5 to 1. It has current liabilities of \$40,000 and noncurrent assets of \$70,000. If Dartmouth’s current ratio is 3.1 to 1, its inventory and prepaid expenses must be:

a.\$30,000.

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b.\$24,000.

c.\$40,000.

d.\$12,400.

Current Ratio = 3.1 : 1

Total Current Assets / Total Current Liabilties = 3.1 : 1

Total Current Assets / \$ 40,000 = 3.1 : 1

Total Current Assets = 3.1 * \$ 40,000

= \$ 124,000

Quick ratio = (Total Current Assets – Prepaid Expenses – Inventory ) / Current Liabilties

2.5 : 1 = ( \$ 124,000 – Prepaid Expenses – Inventory ) / \$ 40,000

or 2.5 *\$ 40,000 = ( \$ 124,000 – Prepaid Expenses – Inventory )

or 100,000 = ( \$ 124,000 – Prepaid Expenses – Inventory )

or Prepaid Expenses + Inventory = \$ 124,000 – \$ 100,000

= \$ 24,000

Hence, the correct answer is b. \$ 24,000