Question
PPC Ltd. signed a five-year term loan in 2020 in which PPC was required to maintain a current ratio of 2.5 times for a loan
PPC Ltd. signed a five-year term loan in 2020 in which PPC was required to maintain a current ratio of 2.5 times for a loan covenant. PPC provides normal credit terms of net 30 on all its sales. The following amounts were reported in the companys year-end financial statements for 2020 and 2019:
Additional information: The bank loan payable is repayable in annual principal payments of $11,920.
Calculate the current ratio for 2019 and 2020. (Round answers to 2 decimal places, e.g. 15.25.)
Calculate the quick ratio for 2019 and 2020. (Round answers to 2 decimal places, e.g. 15.25.)
Calculate the accounts receivable turnover ratio for 2019 and 2020 (just use the current years Accounts Receivable balance). (Round answers to 1 decimal place, e.g. 15.2.)
Is PPC compliant with the current ratio covenant?
YES or NO
How does PPCs average collection period compare to its normal credit terms? (Round answers to 1 decimal place, e.g. 15.2. Use 365 days for calculation.)
Cash Accounts receivable Short-term investments Inventory Prepaid rent Accounts payable Wages payable Income tax payable Sales tax payable Notes payable (within 1 yr.) Bank loan payable Sales revenue 2020 $191,700 181,300 9,900 424,900 75,600 179,700 33,300 50,000 15,000 12,100 59,600 1,895,600 2019 $281,800 90,700 1,900 403,200 75,600 195,900 54,500 59,400 15,000 24,200 0 1,645,200 2020 2019 Current ratio 2020 2019 Quick ratio 2020 2019 Accounts receivable turnover ratio times times 2020 2019 Average collection period days days The average collection period is PPC's normal credit terms
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