Question

The Stewart Company has $2,482,500 in current assets and $1,092,300 in current liabilities. Its initial inventory level is $744,750, 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 2.0? Round your answer to the nearest dollar.

Answer 1

Increase in Stewart Company's short-term debt (notes payable)

Let “X” Taken as additional notes payables used to increase inventory.

Current Ratio = Current Assets / Current Liabilities

2.0 = [$2,482,500 + X] / $1,092,300

[2.0 x $1,092,300] = $2,482,500 + X

$2,184,600 = $2,482,500 + X

X = $2,482,500 - $2,184,600

X = $297,900

“Hence, the Stewart Company's short-term debt (notes payable) will be $297,900”