Underwood Boutique reported the following financial data for 2017 and 2016.

UNDERWOOD BOUTIQUE Balance Sheet (partial)

September 30 (in thousands)

2017 2016 Current assets Cash and short-term deposits $2,574 $1,021 Accounts receivable 2,147 1,575 Inventories 1,201 1,010 Other current assets 322 192 Total current assets $6,244 $3,798 Current liabilities $4,503 $2,619 Instructions

(a) Calculate the current ratio for Underwood Boutique for 2017 and 2016.

(b) Suppose that at the end of 2017, Underwood Boutique used $1.5 million cash to pay off $1.5 million of accounts payable. How would its current ratio change?

(c) At September 30, Underwood Boutique has an undrawn operating line of credit of

$12.5 million. Would this affect any assessment that you might make of Underwood Boutique’s short-term liquidity? Explain.