The chief financial officer (CFO) of Myeneke Corporation requested that the accounting department prepare a preliminary balance sheet on December 30, 2025, 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.

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, 2025. 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 these steps?

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Current assets Cash Accounts receivable Prepaid insurance Equipment (net) Total assets $25,000 30,000 5,000 Myeneke Corp. Balance Sheet December 30, 2025 $ 60,000 200,000 $260,000 Current liabilities Accounts payable Salaries and wages payable Long-term liabilities Notes payable Total liabilities Stockholders' equity Common stock Retained earnings Total liabilities and stockholders' equity $ 20,000 10,000 100,000 50,000 $ 30,000 80,000 110,000 150,000 $260,000