Reference no: EM132507898
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 Payable $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: Based on the preliminary balance sheet above, the current ratio is 1.9 and working capital is 29700.
Question 2: Based on these results, the CFO requested that $22,000 of cash be used to pay off the balance of the accounts payable account on December 31, 2021. Calculate the new current ratio and working capital after the company takes these actions. (Round current ratio to 1 decimal place, e.g. 0.7 : 1.)
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