STEP 1: Picture the Problem The current ratio represents the ratio of two components: current assets divided by current liabilities. Current Assets (assets that are to be converted to cash in a period of a year or less): circle Cash circle Accounts Receivable circle Inventories Current Liabilities (liabilities that must be paid within a period of a year or less): circle Accounts Payable circle Notes Payable circle Current Portion of Long-term Debt Divided by Thus, the increase in inventories increases the numerator and the corresponding increase in notes payable increases the denominator. Letting the increase in inventories and notes payable be equal to an unknown quantity Upper X nbsp, we can visualize the problem faced by Airspot Motors, Inc. as the following equation: Current Ratio equals StartFraction Current Assets plus Upper X Over Current Liabilities plus Upper X EndFraction equals 2.2 STEP 2: Develop a Solution Strategy We can solve for a current ratio of 2.2 where we increase the level of inventories and bank loans (a current liability) by an amount Upper X nbsp, i.e., Current Ratio equals StartFraction Current Assets plus Upper X Over Current Liabilities plus Upper X EndFraction equals StartFraction $ 2 comma 262 comma 000 plus Upper X Over $ 870 comma 000 plus Upper X EndFraction equals 2.2