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The chief financial officer (CFO) of Sheffield Corp. requested that the accounting department prepare a preliminary balance sheet on December 30, 2017, so that the CFO could get an idea of how the company stood. He knows that certain debt agreements with its creditors require the company to maintain a current ratio of at least 2:1. The preliminary balance sheet is as follows.
Sheffield Corp.
Balance Sheet
December 30, 2017 |
| Current assets |
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|
|
|
| Cash |
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$26,200 |
|
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| Accounts receivable |
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31,700 |
|
|
| Prepaid insurance |
|
6,100 |
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$ 64,000 |
| Equipment (net) |
|
|
|
201,400 |
| Total assets |
|
|
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$265,400 |
| Current liabilities |
|
|
|
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| Accounts payable |
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$ 21,200 |
|
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| Salaries and wages payable |
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11,700 |
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$ 32,900 |
| Long-term liabilities |
|
|
|
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| Notes payable |
|
|
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81,100 |
| Total liabilities |
|
|
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114,000 |
| Stockholders’ equity |
|
|
|
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| Common stock |
|
100,000 |
|
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| Retained earnings |
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51,400 |
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151,400 |
| Total liabilities and stockholders’ equity |
|
|
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$265,400 |
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Calculate the current ratio and working capital based on the preliminary balance sheet. (Round Current Ratio to 1 decimal place, e.g. 0.7 : 1.)
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Based on the results in (a), the CFO requested that $21,200 of cash be used to pay off the balance of the accounts payable account on December 31, 2017. Calculate the new current ratio and working capital after the company takes these actions. (Round Current Ratio to 1 decimal place, e.g. 0.7 : 1.)
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