Question

Required information Business Sim Corp. (BSC) issued 1,000 common shares to Kelly in exchange for $11,000. BSC borrowed $32,000 from the bank, promising to repay it in two years. BSC paid $37,000 for computer equipment with check number 101 and signed a note for $4,000 due in six months. BSC received $550 of supplies purchased on account. BSC's loan contains a clause ("covenant") that requires BSC to maintain ratio of current assets to current liabilities of at least 1.3. 4-a. Calculate the current ratio of BSC. 4-b. Whether BSC is complying with or violating its loan covenant. Complete this question by entering your answers in the tabs below. Reg 4A Reg 4B Calculate the current ratio of BSC. Current Ratio Numerator Denominator < Reg 4A Req 4B >

Answer 1

Computation of Current Assets Cash from exchange of shares $ 11,000 Add: Borrowings from Bank $ 32,000 Less: Paid for Computer equipment $ 37,000 Current Assets $ 6,000 *Computer is Fixed asset and thus not inculed above Computation of Current Liablities Note against purchase of computer $ 4,000 Add: Supplies purchased on account $ 550 $ 4,550 *Shares issued and Loan from bank (duration more than 1 year) are non current liab Solution 4a. Numerator Denominator Current Ratio Current Assets Current Liablities $ $ 6,000 4,550 1.32 Solution 4b. BSC is complying with its Loan convenant As the actual Current ratio (1.32) is greater than the minimum required current ratio of 1.3

In case of any issue, Please comment below