PPC Ltd. signed a five-year term loan in 2020 in which PPC was required to maintain a current ratio of 2.5 times for a loan covenant. PPC provides normal credit terms of net 30 on all its sales. The following amounts were reported in the company’s year-end financial statements for 2020 and 2019:

	2020	2019
Cash	$188,100	$281,500
Accounts receivable	178,200	89,900
Short-term investments	10,100	1,800
Inventory	424,300	401,200
Prepaid rent	75,700	75,700
Accounts payable	179,900	195,300
Wages payable	32,700	55,200
Income tax payable	49,700	59,400
Sales tax payable	15,100	15,100
Notes payable (within 1 yr.)	12,000	24,000
Bank loan payable	59,700	0
Sales revenue	1,897,700	1,636,600

Additional information:

The bank loan payable is repayable in annual principal payments of $11,940.

Calculate the current ratio for 2019 and 2020. (Round answers to 2 decimal places, e.g. 15.25.)

	2020	2019
Current ratio

Calculate the quick ratio for 2019 and 2020. (Round answers to 2 decimal places, e.g. 15.25.)

		2020		2019
Quick ratio

Calculate the accounts receivable turnover ratio for 2019 and 2020 (just use the current year’s Accounts Receivable balance). (Round answers to 1 decimal place, e.g. 15.2.)

	2020		2019
Accounts receivable turnover ratio		times		times

Is PPC compliant with the current ratio covenant?
Yes or No

How does PPC’s average collection period compare to its normal credit terms? (Round answers to 1 decimal place, e.g. 15.2. Use 365 days for calculation.)

	2020	2019
Average collection period (days)

The average collection period is _____________________ PPC’s normal credit terms.

(greater than/ less than/ equal to)

Answer rating: 100% (QA)

Current assets 2020 188900 178400 10100 425500 75400 878300 Quick assets 202... View the full answer