On June 30, 2020, Kovacs Company borrowed $425,000 at a bank by signing a five-year, 10% loan. The terms of the loan require equal semi-annual principal payments plus interest beginning December 31, 2020. The loan agreement requires the company to maintain a current ratio of 2.5. The December 31, 2020, year-end statement of financial position, immediately prior to the bank loan repayment and the reclassification of long-term debt, follows:

Current assets		$207,000		Current liabilities		$46,000
Non-current assets		524,000		Loan payable		425,000
				Common shares		154,000
				Retained earnings		106,000
Total assets		$731,000		Total liabilities and shareholders equity		$731,000

Does Kovacs Company comply with the current ratio requirement prior to recording the December 31 loan payment? (Round answer to 1 decimal place, e.g. 1.2.)

Current ratio

Kovacs Company does not meetmeets the banks minimum current ratio.

eTextbook and Media

List of Accounts

Prepare journal entries to record the principal and interest payment on December 31, 2020. (Credit account titles are automatically indented when the amount is entered. Do not indent manually. If no entry is required, select "No entry" for the account titles and enter 0 for the amounts.)

Account Titles and Explanation	Debit	Credit

eTextbook and Media

List of Accounts

Prepare the journal entries to reclassify the portion of the long-term loan as current. (Credit account titles are automatically indented when the amount is entered. Do not indent manually. If no entry is required, select "No entry" for the account titles and enter 0 for the amounts.)

Account Titles and Explanation	Debit	Credit

eTextbook and Media

List of Accounts

Does Kovacs Company comply with the current ratio requirement after preparing the journal entries above? (Round answer to 2 decimal places, e.g. 1.25.)

Current ratio

Kovacs Company does not meetmeets the banks minimum current ratio.