Management of Rivers Co. anticipates that its year-end balance sheet will show current assets of $12,828 and current liabilities of $7,500. Management is considering paying $3,770 of accounts payable before year-end even though payment isn't due until later.
Calculate the firm's working capital and current ratio under each situation.
- Do Not Prepay Prepay
- Accounts Payable Accounts Payable
- Working capital $ $
- Current ratio
a. Assume that Rivers Co. had negotiated a short-term bank loan of $7,000 that can be drawn down either before or after the end of the year. Calculate working capital and the current ratio at year-end under each situation, assuming that early payment of accounts payable is not made.
- Without Loan With Loan
- Working capital $ $