Question

Click here to read the eBock: tiquidity Ratios CURRENT RATIO The Stewart Company has $1.686,500 in current assets and $640.870 in current liabilities. Its initial inventory level is $337,300, and it will raise funds as additional notes payable and use them to increase inventory. How much can its short-term debt (notes payable) increase without pushing its current ratio below 2.07 Round your answer to the nearest cent

Answer 1

Here, Let’s take “X” Taken as additional notes payables used to increase inventory.

Therefore, the Current Ratio = Current Assets / Current Liabilities

2.0 = [$1,686,500 + X] / $640,870

[2.0 x $640,870] = $1,686,500 + X

$1,281,740 = $1,686,500 + X

X = $1,686,500 - $1,281,740

X = $404,760

“Hence, it’s short-term debt will be $404,760”