a. Find the errors in the determination of the three measures of current positio

Question

a.  Find the errors in the determination of the three measures of current position analysis. Then provide the correct amounts below. If required, round the ratios to one decimal place.

b.  Is the company satisfying the terms of the bond indenture?

Working capital: $ Current ratio: Quick ratio: Current assets: Cash.... $302,400 Temporary investments....144.000 Accounts and notes receivable (net)... 353,600 Inventories..... 114,400 Prepaid expenses... 45,600 Intangible assets......388.000 Property, plant, and equipment.... 172.000 Total current assets (net)..... $1,520,000 Current liabilities: Accounts and short-term notes payable... $256,000 Accrued liabilities........ 544,000 Total current liabilities..... 800,000 Working capital..... $720,000 Current ratio..... 1.9 $1,520,000 $800,000 Quick ratio.....1.3 $332,000 $256,000

Explanation / Answer

a. Current assets = cash+temporary investments+accounts and notes receivable (net)+inventories+prepaid expenses = 302,400+144,000+353,600+114,400+45,600 = 960,000

Current liabilities = 800,000

Working capital = current assets - current liabilities = 960,000-800,000 = 160,000

Current ratio = current assets/current liabilities = 960,000/800,000 = 1.2

Quick ratio = (cash+temporary investments+accounts and notes receivable (net))/current liabilities = (302,400+144,000+353,600)/800,000 = 1.0

b. No the company is NOT satisfying the terms of the bond indenture, as the working capital is less than $700,000, the current ratio is less than 1.7, and the quick ratio is less than 1.2

Hope this helped ! Let me know in case of any queries.

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