Question
On May 1, 2024, Carol Fashions borrowed $116,000 at a bank by signing a four-year, 6% loan. The terms of the loan require equal
On May 1, 2024, Carol Fashions borrowed $116,000 at a bank by signing a four-year, 6% loan. The terms of the loan require equal principal payments of $29,000 and accrued interest at 6% due annually on April 30. The loan agreement requires the company to maintain a minimum current ratio of 2.0. The December 31, 2024, year-end statement of financial position, immediately prior to the reclassification of long-term debt, follows: Current assets $149,640 Current liabilities $58,000 Non-current assets 198,360 Loan payable 116,000 Common shares 87,000 Retained earnings 87,000 Total assets $348,000 Total liabilities and shareholders' equity $348,000 (a) Does Carol Fashions comply with the bank's current ratio requirement prior to recording the accrued interest and reclassification of the current portion of the long-term loan? (Round answer to 2 decimal places, e.g. 1.20.) Current ratio Carol Fashions the bank's minimum current ratio.
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