The following items are taken from the year-end general ledger accounts of RAVENNA, Inc. The bonds...
The following items are taken from the year-end general ledger accounts of RAVENNA, Inc. The bonds were issued by First Medici and carried a 10.0% coupon, payable annually on Mar 31. The lending indenture includes an acceleration clause triggered wen the year-end current ratio is less than 2.0. The patent was acquired in the current year and there were $150 in writeoffs in November. (CPA adapted)
Bonds Payable (Principal due 6/30/2030) 5,000
Accounts Payable 1,600
AFDA 110
Accrued Expenses 800
SGA Expenses 1,810
Accounts Receivable 2,200
Inventory 3,200
Patent 4,000
Required: Based on the amounts that RAVENNA will report, what is its current ratio?
Homework Answers
Current assets = ( Accounts receivable - AFDA ) + Inventory
= (2,200-110)+3,200
= $5,290
Accrued interest = Bonds x Interest rate x time period
= 5,000 x 10% x 9/12
= $375
Current liabilities = Accounts payable + Accrued expenses + Accrued interest
= 1,600+800+375
= 2,775
Current ratio = Current assets / Current liabilities
= 5,290/2,775
= 1.91
Other information given in the question is not relevant for calculation current ratio and hence ignored.
Kindly comment if you need further assistance. Thanks‼!
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