These financial statement items are for Barone Corporation at year-end, July 31, 2010.
- Salaries Payable 2,080
- Salaries Expense 51,700
- Utilities expense 22,600
- Equipment 18,500
- Accounts Payable 4,000
- Commission revenue 66,100
- Rent revenue 8,500
- Long-term note payable 1,800
- Common Stock 16,000
- Cash 29,200
- Accounts Receivable 9,780
- Accumulated depreciation 6,000
- Dividends 4,000
- Depreciation expense 4,000
- Retained earnings 35,200
Suppose that you are the president of Allied Equipment. Your sales manager has approached you with a proposal to sell $20,000 of equipment to Barone. He would like to provide a loan to Barone in the form of 10%, 5-year note payable. Evaluate how this loan would change Barrone's current ratio and debt to total assets ratio and discuss whether you would make the sale.