Reference no: EM132507765

The Chief Financial Officer(CFO) of Mercato company requested that the accounting department draw up a preliminary balance sheet on December 30, 2021, so that the CFO could get an idea of how the company stood. He knows that certain debt agreements with its creditors require the company to maintain a current ratio of at least 2:1.

The preliminary balance sheet is as follows:

Mercato Company  Balance sheet December 2021

Current Assets

Cash                                  $27,000

Accounts Receivable               29,700

Prepaid Insurance             6,000                   $62,700

Equipment (net)                  $201,200

Total Assets                         $263,900

Current Liabilities

Accounts Payables                  $22,000

Salaries & Wages Payable      11,000                 33,000

Long-term liabilities

Notes Payable 79,700

Total Liabilities 112,700

Stockholders' Equity

Common Stock 100,000

Retained Earnings                           51,200              151,200

Total Liabilities and Stockholders' Equity 263,900

Question 1: Calculate the current ratio and working capital based on the preliminary balance sheet. (Round current ratio to one decimal place. E.g 0.7:1)