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 4,100
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 (beginning of the year) 35,200
Suppose that you are the president of Allied Equipment. Your sales manager hasc approahed 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 a 10%, 5-year note payable. Evaluate how this loan would change Barone's current ratio and debt to total assets ratio, and discuss whether you would make the sale. Refer to E2-8 (a-c).