Assume you work as an assistant to the chief financial officer (CFO) of Fashions First, Inc. The

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Assume you work as an assistant to the chief financial officer (CFO) of Fashions First, Inc. The CFO reminds you that the fiscal year-end is only two weeks away and that he is looking to you to ensure the company stays in compliance with its loan covenant to maintain a debt-to-assets ratio of no more than 75 percent. A review of the general ledger indicates that assets total $ 690,000 and liabilities are $ 570,000. Your andlia-bilitiesare$570,000.Your company has an excess of Cash ($ 300,000) and an equally large balance in Accounts Payable ($ 270,000), although none of its Accounts Payable are due until next month.
Required:
1. Determine whether the company is currently in compliance with its loan covenant.
2. Assuming the level of assets and liabilities remains unchanged until the last day of the fiscal year, evaluate whether Fashions First should pay down $ 210,000 of its Accounts Payable on the last day of the year, before the Accounts Payable become due.
Accounts Payable
Accounts payable (AP) are bills to be paid as part of the normal course of business.This is a standard accounting term, one of the most common liabilities, which normally appears in the balance sheet listing of liabilities. Businesses receive...
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Fundamentals of Financial Accounting

ISBN: 978-0078025914

5th edition

Authors: Fred Phillips, Robert Libby, Patricia Libby

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