Question

Dividend Aristocrat Inc. (DA) borrowed $211,000 from Grow Business Bank to finance the purchase of equipment costing $158,250 and to provide $52,750 in cash. The legal documentation states that the loan matures in 20 years, and the principal is to be paid in annual instalments of $10,550. The terms of the loan also indicate that DA must maintain a current ratio of 1.25 and cannot pay dividends that will reduce retained earnings below $110,000. The 2020 year-end statement of financial position, immediately prior to the bank loan and the purchase of equipment, follows: Current liabilities Current assets $97,240 $68,000 Long-term liabilities 211,000 Non-current assets 423,760 Common shares 105,000 Retained earnings 137,000 Total liabilities and $521,000 $521,000 shareholders' equity Total assets Prepare the following statement of financial position assuming the maximum divided is declared and paid. Current Liabilities Current Assets $ Long-term Liabilities Non-current Assets Common Shares Retained Earnings Total Liabilities and Shareholder's Equity Total Assets Calculate the current ratio using the updated statement of financial position. (Round answer to 2 decimal places, e.g. 7.25.) Current Ratio in compliance with the loan agreeement Dividend Aristocrat Inc

Answer 1

Current Assets* (97240+52750-27000)	122990	Current Liabilities (68000+10550)	78550
Non Current Assets (423760+158250)	582010	Long Term Liabilities (211000+211000-10550)	411450
		Common Share	105000
		Retained Earnings	110000
	705000		705000

Current ratio = Current assets / current liabilities

122990/78550 = 1.57

*Current asset is calculated as the balancing figure of the balance sheet.