Manitoba Manufacturing Inc. (MMI) has a loan from the Canadian National Bank to help finance its working capital. The terms of the loan are that the bank will lend MMI an amount up to 33% of its inventory balance and 50% of its accounts receivable. One of the loan covenants requires that MMI maintain a current ratio greater than 2.0. Information related to MMI’s current assets and current liabilities is shown in the following table:

Required

a. Does MMI satisfy the loan covenant in both years?

b. Based on the loan size requirement only of the loan covenant, what is the maximum amount of loan MMI could borrow in each year?

c. Based on a review of the accounts receivable balances, do you think sales have grown for MMI in 2020 over 2019?

d. Identify three different ways management could have “managed” the statement of financial position to ensure that MMI met the loan covenant in 2020.

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In thousands 2020 2019 $ 115 $ 160 Cash Accounts receivable 875 870 1,930 Inventory 1,650 Other current assets 240 280 Bank loan, current 400 200 Accounts payable 995 950 Other current liabilities 40 80