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Current Ratio, Quick Ratio, and Times - Interest - Earned Ratio The following data is from the current accounting records of Florence Company: Cash $
Current Ratio, Quick Ratio, and TimesInterestEarned Ratio
The following data is from the current accounting records of Florence Company:
Cash $
Accounts receivable net of allowance of $
Inventory
Other current assets
Accounts payable
Other current liabilities
The president of the company is concerned that the company is in violation of a debt covenant that requires the company to maintain a minimum current ratio of He believes the best way to rectify this is to reverse a bad debt writeoff in the amount of $ that the company just recorded. He argues that the writeoff was done too early and that the collections department should be given more time to collect the outstanding receivables. The CFO argues that this will have no effect on the current ratio, so a better idea is to use $ of cash to pay accounts payable early. Florence Company uses the allowance method to account for bad debts.
a Calculate the current ratio under the following scenarios: Round answers to two decimal places.
Current ratio with no action Answer
Current ratio after reversal of bad debt Answer
Current ratio after paydown of accounts payable Answer
Which action, if any, should Florence Company take to maintain a minimum current ratio?
Answer
b Will either the quick ratio or the timesinterestearned ratios be affected by at least one of these
ideas?
Quick ratio Answer
Timesinterestearned ratio Answer
Please answer all parts of the question.
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