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

Section: Chapter Questions

Problem 1Q

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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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