Question

The Stewart Company has $2,014,500 in current assets and $785,655 in current liabilities. Its initial inventory level is $402,900, and it will raise funds as additional notes payable and use them to increase inventory. How much can its short-term debt (notes payable) increase without pushing its current ratio below 2.0

Answer 1

$20,145

Step-by-step explanation:

The computation of short-term debt (notes payable) increase is given below:-

Current Assets = $785,655

Current Liabilities = $4,02,900

Current Ratio = (Current Assets + Increase in Inventory) ÷ (Current Liabilities + Increase in Notes Payable)

2.0 = ($785,655 + x) ÷ ($4,02,900 + x)

$805,800 + 2.0 = $785,655 + x

$805,800 - $785,655 = 2.0 - x

= $20,145