The bond indenture for the 10-year, 9'/^% debenture bonds dated January 2, 2001,required working capital of \($350,000,\) a current ratio of 1.5, and an acid-test ratioof 1 at the end of each calendar year until the bonds mature. At December 31, 2002, the three measures were computed as follows:

Transcribed Image Text:

1. Current assets: Cash $295,000 Marketable securities 148,000 Accounts and notes receivable (net) 172,000 Inventories... 300,000 Prepaid expenses 135,000 Goodwill 150,000 Total current assets $1,200,000 Current liabilities: Accounts and short-term notes payable $500,000 Accrued liabilities 250,000 Total current liabilities 750,000 Working capital $ 450,000 2. Current ratio 1.6 ($1,200,000+ $750,000) 3. Acid-test ratio 1.2 ($615,000 $500,000) a. Can you find any errors in the determination of the three measures of current position analysis? b. Is the company satisfying the terms of the bond indenture?