Current Position Analysis
The bond indenture for the 10-year, 9% debenture bonds issued January 2, 2015, 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, 2016, the three measures were computed as follows:
| 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 |
124,800 |
|
|
|
| |
|
Property, plant, and equipment |
55,200 |
|
|
|
| |
|
|
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 |
1.2 |
$115,200 |
÷ |
$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
Current ratio
Quick ratio
b. Is the company satisfying the terms of the bond indenture?