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I need help in solving this problem as well as getting a better understanding of it, thank you. The chief financial officer (CFO) of Wildhorse
I need help in solving this problem as well as getting a better understanding of it, thank you.
The chief financial officer (CFO) of Wildhorse Co. requested that the accounting department prepare a preliminary balance sheet on December 30, 2022, 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. Wildhorse Co. Balance Sheet December 30, 2022 Current assets Cash Accounts receivable Prepaid insurance Equipment (net) $26,200 30,500 6,000 $ 62,700 201,400 $264,100 Total assets Current liabilities Accounts payable Salaries and wages payable Long-term liabilities $ 22,000 11,000 $33,000 Notes payable 79,700 112,700 Total liabilities Stockholders' equity Common stock 100,000 51,400 Retained earnings 151,400 $264,100 Total liabilities and stockholders' equity (a) Calculate the current ratio and working capital based on the preliminary balance sheet. (Round current ratio to 1 decimal place, e.g. 0.7: 1.) Current ratio Working capital $ LINK TO TEXT (b) Based on the results in (a), the CFO requested that $22,000 of cash be used to pay off the balance of the accounts payable account on December 31, 2022. Calculate the new current ratio and working capital after the company takes these actions. (Round current ratio to 1 decimal place, e.g. 0.7: 1.) Current ratio Working capital $Step by Step Solution
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