Question: The bond indenture for the 10-year, 8% debenture bonds dated January 2, 20Y8, required working capital of $200,000, a current ratio of 2.0, and a
The bond indenture for the 10-year, 8% debenture bonds dated January 2, 20Y8, required working capital of $200,000, a current ratio of 2.0, and a quick ratio of 1.0 at the end of each calendar year until the bonds mature. At December 31, 20Y9, the three measures were computed as follows:
| 1. | Current assets: | ||||||
| Cash | $186,000 | ||||||
| Temporary investments | 232,500 | ||||||
| Accounts receivable (net) | 372,000 | ||||||
| Inventories | 294,500 | ||||||
| Prepaid expenses | 77,500 | ||||||
| Intangible assets | 46,500 | ||||||
| Property, plant, and equipment | 837,000 | ||||||
| Total current assets (net) | $2,046,000 | ||||||
| Current liabilities: | |||||||
| Accounts and short-term notes payable | $189,000 | ||||||
| Accrued liabilities | 216,000 | ||||||
| Total current liabilities | (405,000) | ||||||
| Working capital | $1,641,000 | ||||||
| 2. | Current ratio | 5.1 | $2,046,000 $405,000 | ||||
| 3. | Quick ratio | 5.4 | $1,023,000 $189,000 | ||||
a. There are errors in the calculation of the three measures of current position analysis. Determine the correct amounts. Round ratios to two decimal places.
| Working capital | ||
| Current ratio | ||
| Quick ratio |
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