Longwood Company had a current ratio of 3:1 at the end of Year 1. The asset section of the company's balance sheet is provided below:
Required:1)Compute Longwood Company's end-of-year working capital.2)Compute the company's quick (acid-test)ratio.3)The company has a debt agreement with its bank that authorizes the bank to call in its loan to the company if the company's current ratio falls below 3:1 as of the last day of any month during the term of the loan. During January Year 2, the company engaged in the three following transactions:(a)Collected $100,000 on account;(b)Purchased inventory on account, $50,000(c)Paid accounts payable, $60,000Will the company be in default after completing these transactions? Justify your answer.
Round your answers to two decimal places.

Question

Longwood Company had a current ratio of 3:1 at the end of Year 1. The asset section of the company's balance sheet is provided below:
  Required:1)Compute Longwood Company's end-of-year working capital.2)Compute the company's quick (acid-test)ratio.3)The company has a debt agreement with its bank that authorizes the bank to call in its loan to the company if the company's current ratio falls below 3:1 as of the last day of any month during the term of the loan. During January Year 2, the company engaged in the three following transactions:(a)Collected $100,000 on account;(b)Purchased inventory on account, $50,000(c)Paid accounts payable, $60,000Will the company be in default after completing these transactions? Justify your answer.
Round your answers to two decimal places.

Quizplus · Accepted Answer

The Answer of Longwood Company had a current ratio of 3:1 at the end of Year 1. The asset section of the company's balance sheet is provided below:
  Required:1)Compute Longwood Company's end-of-year working capital.2)Compute the company's quick (acid-test)ratio.3)The company has a debt agreement with its bank that authorizes the bank to call in its loan to the company if the company's current ratio falls below 3:1 as of the last day of any month during the term of the loan. During January Year 2, the company engaged in the three following transactions:(a)Collected $100,000 on account;(b)Purchased inventory on account, $50,000(c)Paid accounts payable, $60,000Will the company be in default after completing these transactions? Justify your answer.
Round your answers to two decimal places.

Longwood Company Had a Current Ratio of 3:1 at the End