Reference no: EM132927835

Problem 1: Madeline is the sole proprietor of Maddie's Fine Art and wants to know whether she will have enough funds in her bank account to pay her bills over the next three months. She has $1,000 in her bank account after recently selling a painting, owes $500 to a vendor for paint and canvas, and expects an additional $500 in invoices in the next three months for other supplies. As her accountant, the best feedback you can give Madeline is:

A. In addition to paying her current invoices, Madeline can go ahead and make advance purchases of more supplies for new art projects as Maddie's Fine Art has a current ratio of 2.0.

B. Madeline should consult with a bankruptcy attorney because Maddie's Fine Art has a current ratio of 0.75 and may not be able to pay any or all of its invoices within the next three months.

C. Madeline will need to sell at least one more painting for $500 to cover the invoices due within the next three months as Maddie's Fine art has a current ratio of 0.5.

D. Assuming no additional sales over the next three months, Maddie's Fine Art has a current ratio of 1.0 and therefore has the necessary liquidity to pay its vendors.