Reference no: EM132494015
Question - Dividend Aristocrat Inc. (DA) borrowed $192,000 from Grow Business Bank to finance the purchase of equipment costing $144,000 and to provide $48,000 in cash. The legal documentation states that the loan matures in 20 years, and the principal is to be paid in annual instalments of $9,600. The terms of the loan also indicate that DA must maintain a current ratio of 1.25 and cannot pay dividends that will reduce retained earnings below $91,000. The 2020 year-end statement of financial position, immediately prior to the bank loan and the purchase of equipment, follows:
Current assets $101,400 Current liabilities $78,000
Non-current assets 393,600 Long-term liabilities 192,000
Common shares 96,000
Retained earnings 129,000
Total assets $495,000
Total liabilities and shareholders' equity $495,000
Required -
Prepare the following statement of financial position assuming the maximum divided is declared and paid.
Calculate the current ratio using the updated statement of financial position.