The following data is from the current accounting records of Florence Company:

Cash	$336
Accounts receivable (net of allowance of $112 )	560
Inventory	420
Other current assets	224
Accounts payable	305
Other current liabilities	476

The president of the company is concerned that the company is in violation of a debt covenant that requires the company to maintain a minimum current ratio of 2.0. He believes the best way to rectify this is to reverse a bad debt writeoff in the amount of $28 that the company just recorded. He argues that the writeoff was done too early and that the collections department should be given more time to collect the outstanding receivables. The CFO argues that this will have no effect on the current ratio, so a better idea is to use $28 of cash to pay accounts payable early. Florence Company uses the allowance method to account for bad debts.

a. Calculate the current ratio under the following scenarios: Round answers to two decimal places.

Current ratio (with no action)	Answer
Current ratio (after reversal of bad debt)	Answer
Current ratio (after paydown of accounts payable)	Answer

Which action, if any, should Florence Company take to maintain a minimum 2.0 current ratio? AnswerNo action should be taken.The bad debt write-off should be reversed.Cash should be used to pay down accounts payableBoth the bad debt reversal and accounts payable paydown would raise the current ratio. b. Will either the quick ratio or the timesinterestearned ratios be affected by at least one of these ideas?

Quick ratio	AnswerWill be affectedWill not be affected
Times-interest-earned ratio	AnswerWill be affectedWill not be affected