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Is the company satisfying the terms of the bond indenture

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Reference no: EM131765963

Current Position Analysis

The bond indenture for the 10-year, 9% debenture bonds issued January 2, 2015, required working capital of $100,000, a current ratio of 1.5, and a quick ratio of 1.0 at the end of each calendar year until the bonds mature. At December 31, 2016, the three measures were computed as follows:

1. Current assets:  
    Cash $102,000      
    Temporary investments 48,000      
    Accounts and notes receivable (net) 120,000      
    Inventories 36,000      
    Prepaid expenses 24,000      
    Intangible assets 124,800      
    Property, plant, and equipment 55,200      
      Total current assets (net)   $510,000    
  Current liabilities:      
    Accounts and short-term notes payable $96,000      
    Accrued liabilities 204,000      
      Total current liabilities   300,000    
  Working capital   $210,000    
2. Current ratio 1.7 $510,000 ÷ $300,000
3. Quick ratio 1.2 $115,200 ÷ $96,000

a.  Find the errors in the determination of the three measures of current position analysis. Then provide the correct amounts below. If required, round the ratios to one decimal place.

Working capital
Current ratio
Quick ratio

b.  Is the company satisfying the terms of the bond indenture?

Reference no: EM131765963

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