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:Please see the attachment for details:a. List the errors in the determination of the three measures of current position analysis.b. Is the company satisfying the terms of the bond indenture? Explain. 1.Current assets:Cash.....$102,000Temporary investments ....48,000Accounts and notes receivable (net)..120,000Inventories.....36,000Prepaid expenses..24,000Intangible assetsProperty, plant, and equipment....Total current assets (net).....124,80055,200$510,000Current liabilities:$ 96,000Accounts and short-term notes payable....Accrued liabilities...204,000Total current liabilities300,000Working capital ...$210,000 Current ratio .Quick ratio.....2.1.7$510,000 + $300,0003.1.2$115,200 - $ 96,000

Answered: 1. Current assets: Cash..... $102,000…

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:

Please see the attachment for details:

a. List the errors in the determination of the three measures of current position analysis.
b. Is the company satisfying the terms of the bond indenture? Explain.

1.
Current assets:
Cash.....
$102,000
Temporary investments ....
48,000
Accounts and notes receivable (net)..
120,000
Inventories.....
36,000
Prepaid expenses..
24,000
Intangible assets
Property, plant, and equipment....
Total current assets (net).....
124,800
55,200
$510,000
Current liabilities:
$ 96,000
Accounts and short-term notes payable....
Accrued liabilities...
204,000
Total current liabilities
300,000
Working capital ...
$210,000

Current ratio .
Quick ratio.....
2.
1.7
$510,000 + $300,000
3.
1.2
$115,200 - $ 96,000

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