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Application Problem 9-10A Dividend Aristocrat Inc. (DA) borrowed $211,000 from Grow Business Bank to finance the purchase of equipment costing $158,250 and to provide $52,750
Application Problem 9-10A Dividend Aristocrat Inc. (DA) borrowed $211,000 from Grow Business Bank to finance the purchase of equipment costing $158,250 and to provide $52,750 in cash. The legal documentation states that the loan matures in 20 years, and the principal is to be paid in annual instalments of $10,550. The terms of the loan also indicate that DA must maintain a current ratio of 1.25 and cannot pay dividends that will reduce retained earnings below $92,000. The 2020 year-end statement of financial position, immediately prior to the bank loan and the purchase of equipment, follows: Current assets Non-current assets $106,400 401,600 Current liabilities Long-term liabilities Common shares Retained earnings Total liabilities and shareholders' equity $80,000 211,000 90,000 Total assets $508,000 S508,000 Prepare the following statement of financial position assuming the maximum divided is declared and paid. Current Assets Current Liabilities Non-current Assets Long-term Liabilities Common Shares Retained Earnings Total Liabilities and Shareholder's Equity Total Assets Calculate the current ratio using the updated statement of financial position. (Round answer to 2 decimal places, e.g. 7.25.) Current Ratio Dividend Aristocrat Inc. in compliance with the loan agreeement
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