The chief financial officer (CFO) of Crane Company requested that the accounting department prepare a preliminary balance sheet on December 30, 2022, so that the CFO could get an idea of how the company stood. He knows that certain debt agreements with its creditors require the company to maintain a current ratio of at least 2:1. The preliminary balance sheet is as follows.

Crane Company Balance Sheet December 30, 2022
Current assets
Cash		$26,200
Accounts receivable		35,000
Prepaid insurance		6,000		$ 67,200
Equipment (net)				202,000
Total assets				$269,200
Current liabilities
Accounts payable		$ 21,000
Salaries and wages payable		11,000		$ 32,000
Long-term liabilities
Notes payable				85,200
Total liabilities				117,200
Stockholders’ equity
Common stock		100,000
Retained earnings		52,000		152,000
Total liabilities and stockholders’ equity				$269,200

a) Calculate the current ratio and working capital based on the preliminary balance sheet. (Round current ratio to 1 decimal place, e.g. 0.7 : 1.)

b) Based on the results in (a), the CFO requested that $21,000 of cash be used to pay off the balance of the accounts payable account on December 31, 2022. Calculate the new current ratio and working capital after the company takes these actions. (Round current ratio to 1 decimal place, e.g. 0.7 : 1.)

Answer rating: 100% (QA)

a To calculate the current ratio we divide the total current assets by the total current liabilities ... View the full answer