The chief financial officer (CFO) of Padilla Corporation requested that the accounting department prepare a preliminary balance

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The chief financial officer (CFO) of Padilla Corporation requested that the accounting department prepare a preliminary balance sheet on December 30, 2012, 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.

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Instructions(a) Calculate the current ratio and working capital based on the preliminary balance sheet.(b) Based on the results in (a), the CFO requested that $20,000 of cash be used to pay off the balance of the accounts payable account on December 31, 2012. Calculate the new current ratio and working capital after the company takes these actions. (c) Discuss the pros and cons of the current ratio and working capital as measures of liquidity.(d) Was it unethical for the CFO to take thesesteps?

Corporation
A Corporation is a legal form of business that is separate from its owner. In other words, a corporation is a business or organization formed by a group of people, and its right and liabilities separate from those of the individuals involved. It may...
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Financial Accounting Tools for business decision making

ISBN: 978-0470534779

6th Edition

Authors: Paul D. Kimmel, Jerry J. Weygandt, Donald E. Kieso

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