The chief financial officer (CFO) of Greenstem Corporation requested that the accounting department prepare a preliminary balance sheet on December 30, 2010, so that the CFO could get an idea of how the company stood. He knows that certain debt agreements with its creditors require the company to maintain a current ratio of at least 2:1. The preliminary balance sheet is as follows.

Instructions
(a) Calculate the current ratio and working capital based on the preliminary balance sheet.
(b) Based on the results in (a), the CFO requested that $25,000 of cash be used to pay off the balance of the accounts payable account on December 31, 2010. Calculate the new current ratio and working capital after the company takes these actions.
(c) Discuss the pros and cons of the current ratio and working capital as measures of liquidity.
(d) Was it unethical for the CFO to take thesesteps?

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GREENSTEM CORP. Balance Sheet December 30, 2010 Current assets Current liabilities Cash Accounts receivable 30,000 Accounts payable Prepaid insue 10,000 70,000 Long-term liabilities Total liabilitics $260,000 Stockholders cquity Retained earnings $30,000 $ 25,000 Salarics payable5.000 40,000 Property, plant, and Notes payable 80,000 120,000 equipment (net) 190,000 Total assets Common stock 100,000 Total liabilities and140,000 $260,000 stockholders' equity