Current position analysis Obj. 3 The bond indenture for the 10-year, 9% debenture bonds issued January 2,

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Current position analysis Obj. 3 The bond indenture for the 10-year, 9% debenture bonds issued January 2, 20Y5, required working capital of $100,000, a current ratio of 1.5, and a quick ratio of 1.0 at the end of each calendar year until the bonds mature. At December 31, 20Y6, the three measures were computed as follows:

1. Current assets:

Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $102,000 Temporary investments . . . . . . . . . . . . . . . . . . . . . . . 48,000 Accounts and notes receivable (net) . . . . . . . . . . . 120,000 Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36,000 Prepaid expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24,000 Intangible assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 124,800 Property, plant, and equipment . . . . . . . . . . . . . . . 55,200 Total current assets (net) . . . . . . . . . . . . . . . . . . . $ 510,000 Current liabilities:

Accounts and short-term notes payable . . . . . . . $ 96,000 Accrued liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . 204,000 Total current liabilities . . . . . . . . . . . . . . . . . . . . . (300,000)

Working capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 210,000 2. Current ratio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.7 $ 510,000  $300,000 3. Quick ratio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.2 $ 115,200  $ 96,000

a. List the errors in the determination of the three measures of current position analysis.

b. Is the company satisfying the terms of the bond indenture?

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Corporate Financial Accounting

ISBN: 9781337398176

15th Edition

Authors: Carl Warren, Jefferson Jones

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