Suppose that La-Z-Boy in E2€“7 signed a debt covenant specifying that current assets must exceed current liabilities by $200 million. Assume further that in early January 2015, the company planned to purchase a $200-million piece of machinery and had two possible methods of paying for it: (1) short-term note payable or (2) long-term note payable. Compute the effect of each alternative on the difference between current assets and current liabilities, and discuss which method seems to be more feasible. 

Data from E2-7

La-Z-Boy Incorporated included the following information in its 2014 annual report (dollars in millions).

Transcribed Image Text:

2014 2013 $ 98 $150 Cash Accounts receivable 159 153 Inventory 157 147 Other current assets 63 73 $477 $523 Total current assets Current liabilities 155 167 $322 $356 Current assets minus current liabilities