Valley Company has cash, current liabilities, and long-term liabilities of $120,000, $30,000, and $31,000, respectively. Valley has no current assets other than cash. How much cash can Valley use to acquire equipment so that amount of current assets is double the amount of current liabilities?

Question

Quizplus · Accepted Answer

First, we need to find the amount of current assets that Valley needs to have double the amount of current liabilities:

Current Liabilities = $30,000
Double the Amount of Current Liabilities = $60,000

Next, we need to determine how much cash Valley can use without going below the required amount of current assets:

Current Assets = Cash
Current Liabilities = $30,000
Additional Current Assets Needed = $60,000 - $30,000 = $30,000
Long-Term Liabilities = $31,000

Therefore, Valley's maximum cash limit for acquiring equipment would be:

Cash = Current Assets - Current Liabilities
Cash = $30,000 + $30,000 - $31,000
Cash = $29,000

However, since Valley cannot go below $60,000 in current assets, the actual maximum cash limit is:

Cash = $60,000 - $30,000
Cash = $30,000

Therefore, the best choice is B) $60,000.

Valley Company Has Cash, Current Liabilities, and Long-Term Liabilities of $120,000