Dividend Aristocrat Inc. (DA) borrowed $211,000 from Grow Business Bank to finance the purchase of equipment costing $158,250 and to provide $52,750 in cash. The legal documentation states that the loan matures in 20 years, and the principal is to be paid in annual instalments of $10,550. The terms of the loan also indicate that DA must maintain a current ratio of 1.25 and cannot pay dividends that will reduce retained earnings below $110,000. The 2020 year-end statement of financial position, immediately prior to the bank loan and the purchase of equipment, follows: Current assets $97,240 Current liabilities 423 760 liabilitie $68,000 211 000
Dividend Aristocrat Inc. (DA) borrowed $211,000 from Grow Business Bank to finance the purchase of equipment costing $158,250 and to provide $52,750 in cash. The legal documentation states that the loan matures in 20 years, and the principal is to be paid in annual instalments of $10,550. The terms of the loan also indicate that DA must maintain a current ratio of 1.25 and cannot pay dividends that will reduce retained earnings below $110,000. The 2020 year-end statement of financial position, immediately prior to the bank loan and the purchase of equipment, follows: Current assets $97,240 Current liabilities 423 760 liabilitie $68,000 211 000
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:Dividend Aristocrat Inc. (DA) borrowed $211,000 from Grow Business Bank to finance the purchase of equipment
costing $158,250 and to provide $52,750 in cash. The legal documentation states that the loan matures in 20 years,
and the principal is to be paid in annual instalments of $10,550. The terms of the loan also indicate that DA must
maintain a current ratio of 1.25 and cannot pay dividends that will reduce retained earnings below $110,000. The
2020 year-end statement of financial position, immediately prior to the bank loan and the purchase of equipment,
follows:
Current assets
Non-current assets
Total assets
Current Assets
Total liabilities and
shareholders' equity $521,000
Prepare the following statement of financial position assuming the maximum divided is declared and paid.
Non-current Assets
$97,240
423,760
Current Ratio
$521,000
$
Current liabilities
Long-term liabilities
Common shares
Retained earnings
Dividend Aristocrat Inc.
Current Liabilities
$68,000
211,000
105,000
137,000
Long-term Liabilities
Common Shares
Total Assets
Calculate the current ratio using the updated statement of financial position. (Round answer to 2 decimal places,
e.g. 7.25.)
$
Retained Earnings
Total Liabilities and
Shareholder's Equity $
in compliance with the loan agreeement.
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