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Current Ratio / Quick ratio

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Company A has $1,312,500 in current assets and $525,000 in current liabilities. The company's initial inventory level is $375,000, and it will issue notes payable and use the proceeds to INCREASE INVENTORY!!

a. How much can Company A's short-term debt (notes payable) increase without pushing its current ratio below 2.0?
b. What will be the firm's quick ratio after Company A has raised the maximum amount of short-term funds?

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Solution Summary

The solution explains how much the company can incerase the notes payable so as to meet the current ratio requirements and the quick ratio after the increase

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a. How much can Company A's short-term debt (notes payable) increase without pushing its current ratio below 2.0?

Current ratio = Current Assets/Current Liabilities.
When they increase inventory by issung notes payable, both the inventory (current ...

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