The bond indenture for the 10-year, 9% debenture bonds issued January 2, 20Y5, required working capital of $100,000, a current ratio of 1.5, and a quick ratio of 1.0 at the end of each calendar year until the bonds mature. At December 31, 20Y6, the three measures were computed as follows: 1. Current assets:       Cash $99,000           Temporary investments 48,000           Accounts and notes receivable (net) 123,000           Inventories 36,000           Prepaid expenses 24,000           Intangible assets 115,200           Property, plant, and equipment 64,800             Total current assets (net)   $510,000        Current liabilities:           Accounts and short-term notes payable $96,000           Accrued liabilities 204,000             Total current liabilities   (300,000)       Working capital   $210,000      2. Current ratio 1.7 $510,000 ÷ $300,000 3. Quick ratio 1.3 $124,800 ÷ $96,000 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. Working capital $fill in the blank 1 Current ratio fill in the blank 2 Quick ratio fill in the blank 3 b.  Is the company satisfying the terms of the bond indenture?

FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
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The bond indenture for the 10-year, 9% debenture bonds issued January 2, 20Y5, required working capital of $100,000, a current ratio of 1.5, and a quick ratio of 1.0 at the end of each calendar year until the bonds mature. At December 31, 20Y6, the three measures were computed as follows:

1. Current assets:  
    Cash $99,000      
    Temporary investments 48,000      
    Accounts and notes receivable (net) 123,000      
    Inventories 36,000      
    Prepaid expenses 24,000      
    Intangible assets 115,200      
    Property, plant, and equipment 64,800      
      Total current assets (net)   $510,000     
  Current liabilities:      
    Accounts and short-term notes payable $96,000      
    Accrued liabilities 204,000      
      Total current liabilities   (300,000)    
  Working capital   $210,000     
2. Current ratio 1.7 $510,000 ÷ $300,000
3. Quick ratio 1.3 $124,800 ÷ $96,000

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.

Working capital $fill in the blank 1
Current ratio fill in the blank 2
Quick ratio fill in the blank 3

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

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