Required information [The following information applies to the questions displayed below.] You have been given responsibility for overseeing a bank's small business loans division. The bank has included loan covenants requiring a minimum current ratio of 1.40 in all small business loans. When you ask which inventory costing method the covenant assumes, the previous loans manager gives you a blank look. To explain to him that a company's inventory costing method is important, you present the following balance sheet information. Current assets other than inventory Inventory Other (noncurrent) assets Total assets Current liabilities Other (noncurrent) liabilities Stockholders' equity Total liabilities and stockholders' equity $ 27 (a) FIFO Weighted Average LIFO 141 $ (b) $70 78 (d) $ (c) You ask the former loans manager to find amounts for (a), (b), (c), and (d) assuming the company began the year with 5 units of inventory at a unit cost of $14, then purchased 8 units at a cost of $15 each, and finally purchased 6 units at a cost of $19 each. A year-end inventory count determined that 4 units are on hand. Determine whether the company would be in violation or compliance with the loan covenant if the company were to use () FIFO, (ii) Weighted Average, and (iii) LIFO.
Required information [The following information applies to the questions displayed below.] You have been given responsibility for overseeing a bank's small business loans division. The bank has included loan covenants requiring a minimum current ratio of 1.40 in all small business loans. When you ask which inventory costing method the covenant assumes, the previous loans manager gives you a blank look. To explain to him that a company's inventory costing method is important, you present the following balance sheet information. Current assets other than inventory Inventory Other (noncurrent) assets Total assets Current liabilities Other (noncurrent) liabilities Stockholders' equity Total liabilities and stockholders' equity $ 27 (a) FIFO Weighted Average LIFO 141 $ (b) $70 78 (d) $ (c) You ask the former loans manager to find amounts for (a), (b), (c), and (d) assuming the company began the year with 5 units of inventory at a unit cost of $14, then purchased 8 units at a cost of $15 each, and finally purchased 6 units at a cost of $19 each. A year-end inventory count determined that 4 units are on hand. Determine whether the company would be in violation or compliance with the loan covenant if the company were to use () FIFO, (ii) Weighted Average, and (iii) LIFO.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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![Required information
[The following information applies to the questions displayed below.]
You have been given responsibility for overseeing a bank's small business loans division. The bank has included loan
covenants requiring a minimum current ratio of 1.40 in all small business loans. When you ask which inventory costing
method the covenant assumes, the previous loans manager gives you a blank look. To explain to him that a company's
inventory costing method is important, you present the following balance sheet information.
Current assets other than inventory
Inventory
Other (noncurrent) assets
Total assets
Current liabilities
Other (noncurrent) liabilities
Stockholders' equity
Total liabilities and stockholders' equity
0³3|2|2R9|2|
You ask the former loans manager to find amounts for (a), (b), (c), and (d) assuming the company began the year with 5
units of inventory at a unit cost of $14, then purchased 8 units at a cost of $15 each, and finally purchased 6 units at a cost
of $19 each. A year-end inventory count determined that 4 units are on hand.
5. Determine whether the company would be in violation or compliance with the loan covenant if the company were to use (1) FIFO, (ii)
Weighted Average, and (iii) LIFO.
FIFO
Weighted Average
LIFO](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F95d2cbff-5235-420a-974c-6f1fa21e0c3a%2Fb90df1ba-a909-4225-a939-b96ac9bb8ef8%2Ff1bqtum_processed.jpeg&w=3840&q=75)
Transcribed Image Text:Required information
[The following information applies to the questions displayed below.]
You have been given responsibility for overseeing a bank's small business loans division. The bank has included loan
covenants requiring a minimum current ratio of 1.40 in all small business loans. When you ask which inventory costing
method the covenant assumes, the previous loans manager gives you a blank look. To explain to him that a company's
inventory costing method is important, you present the following balance sheet information.
Current assets other than inventory
Inventory
Other (noncurrent) assets
Total assets
Current liabilities
Other (noncurrent) liabilities
Stockholders' equity
Total liabilities and stockholders' equity
0³3|2|2R9|2|
You ask the former loans manager to find amounts for (a), (b), (c), and (d) assuming the company began the year with 5
units of inventory at a unit cost of $14, then purchased 8 units at a cost of $15 each, and finally purchased 6 units at a cost
of $19 each. A year-end inventory count determined that 4 units are on hand.
5. Determine whether the company would be in violation or compliance with the loan covenant if the company were to use (1) FIFO, (ii)
Weighted Average, and (iii) LIFO.
FIFO
Weighted Average
LIFO
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