Question

The Company has $1,750,000 in current assets and $700,000 in current liabilities. Its initial inventory level is $500,000, and it will raise funds as additional notes payable and use them to increase inventory. How much can Speirs's short-term debt (notes payable) increase inventory without violating a current ratio of 2.25 to 1? What will be the firm's quick ratio after Speirs has raised the maximum short-term funds? Round this value to two decimal places. Do not include $ signs or commas.

Answer 1

How much can Speirs's short-term debt (notes payable) increase inventory without violating a current ratio of 2.25 to 1?

Notes Payable 319,990

Initial Ratio After Adj

Current RATIO 2,50 2,25

What will be the firm's quick ratio after Speirs has raised the maximum short-term funds?

Initial Ratio After Adj

Quick RATIO 1,79 1,36

Step-by-step explanation:

Assets Balance

Others $1,250,000

Inventory $819,990

TOTAL CURRENT ASSETS $2,069,990

TOTAL ASSETS $2,069,990

Notes Payable $319,990

Others $600,000

TOTAL CURRENT LIABILITIES 919,990

Initial Ratio After Adj

Current RATIO 2,50 2,25

Quick RATIO 1,79 1,36