Reference no: EM132828228
On May 1, 2020, Christina Fashions borrowed $100,000 at a bank by signing a four-year, 6% loan. The terms of the loan require equal principal payments of $25,000 and accrued interest at 6% due annually on April 30. The loan agreement requires the company to maintain a minimum current ratio of 2.0.
The December 31, 2020, year-end statement of financial position, immediately prior to the reclassification of long-term debt, follows:
Current assets $117,000 Current liabilities$45,000
Non-current assets 188,000 Loan payable100,000
Common shares83,000
Retained earnings77,000
Total assets $305,000 Total liabilities and shareholders' equity $305,000
Problem 1: Does Christina Fashions comply with the bank's current ratio requirement prior to recording the accrued interest and reclassification of the current portion of the long-term loan?
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