On May 1, 2020, Christina Fashions borrowed $100,000 at a bank by signing a four-year, 6% loan. The terms of the loan require equal principal payments of $25,000 and accrued interest at 6% due annually on April 30. The loan agreement requires the company to maintain a minimum current ratio of 2.0. The December 31, 2020, year-end statement of fi nancial position, immediately prior to the reclassifi cation of long-term debt, follows:

Required

a. Does Christina Fashions comply with the bank’s current ratio requirement prior to recording the accrued interest and reclassifi cation of the current portion of the long-term loan?

b. Prepare journal entries to record the interest payable on December 31, 2020.

c. Prepare the journal entries to reclassify the portion of the long-term loan as current.

d. Does Christina Fashions breach the bank’s current ratio requirement after preparing the journal entries above?

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Current assets Non-current assets Current liabilities Loan payable Common shares Retained earnings Total liabilities and shareholders' equity $ 50,000 100,000 75,000 75,000 $125,000 175,000 Total assets $300,000 $300,000