Jordan Gold, the CFO of CANCO Corporation, requested that the accounting department prepare a preliminary balance sheet on December 30, 2020, so that he could get an idea of how the company stood. He knows that certain debt agreements with CANCO's creditors require the company to maintain a current ratio of at least 2:1. The preliminary balance sheet is as follows:

CANCO Corporation

Balance Sheet

December 30, 2020

Current AssetsCurrent Liabilities

Cash$25,000Accounts Payable$20,000

Accounts Receivable30,000Salaries Payable10,000$30,000

Prepaid Insurance5,000$60,000Long Term Liabilities

Equipment (net)200,000Notes Payable80,000

Total Assets$260,000Total Liabilities110,000

Stockholders' equity

Common Stock100,000

Retained Earnings50,000150,000

Total Liabilities and

Stockholders' equity$260,000

Required:

1. Calculate the current ratio and working capital based on the preliminary balance sheet.

2. Based on the results in (1), Jordan Gold, the CFO requested that $20,000 of cash be used to pay off the balance of the Accounts Payable account on December 31, 2020. Calculate the new current ratio and working capital after the company takes these actions.

3. Discuss the pros and cons of the current ratio and working capital as measures of liquidity.

4. Was it unethical for the CFO to take these steps?