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Covenant requiring a working capital ratio

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Reference no: EM1348104

Jo Company reports the following on 12.31.09 (in thousand $s):

Cash and Receivables 280 Accounts Payable 60
Merchandise 125 Payroll Payable 10
Prepaid Insurance 25 Taxes Currently Payable 10
Long Term Investments 110 Notes Currently Payable 50
Land 200 Capital Stock 500
Equipment (book value) 110 Retained Earnings 220

Jo has a bank loan with a covenant requiring a working capital ratio of at least 3 to 1.

Is Jo in technical default on the loan ? Please explain how you have arrived at your conclusion and show your work

 

Reference no: EM1348104

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