Current position analysis Obj. 3 The bond indenture for the 10-year, 9% debenture bonds issued January 2,
Question:
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?
AppendixLO1
Step by Step Answer:
Corporate Financial Accounting
ISBN: 9781337398176
15th Edition
Authors: Carl Warren, Jefferson Jones