The chief financial officer (CFO) of Padilla Corporation requested that the accounting department prepare a preliminary statement of financial position on December 20, 2012. He knows that certain debt agreements with its lenders require the company to maintain a current ratio of at least 2:1 and wants to know how the company is doing. The preliminary statement of financial position follows:

Instructions
(a) Calculate the current ratio based on the data in the preliminary statement of financial position.
(b) Based on the results in (a), the CFO requested that $20,000 of the cash be used to pay off the balance of the accounts payable account on December 21. Calculate the current ratio after this payment is made, assuming there are no further changes to current assets and current liabilities.
(c) Is it ethical for the CFO to recommend this action?

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PADILLA CORPORATION Statement of Financial Position December 20, 2012 Assets Liabilities Current assets Current liabilities Cash Accounts receivable Prepaid insurance s 25,000 30,000 5,000 60,000 200,000 $260,000 Accounts payable $20,000 10,000 Salaries payable Bank loan payable 30,000 80,000 110,000 Total current assets Equipment Total liabilities Shareholders' equity Common shares Retained earnings Total assets $100,000 50,000 150,000 $260,000 Total liabilities and shareholders' equity