The Nelson Company has $1,365,000 in current assets and $455,000 in current liabilities. Its initial inventory level is $300,000, and it will raise funds as additional notes payable and use them to increase inventory. How much can Nelson's short-term debt (notes payable) increase without pushing its current ratio below 2.0? Do not round intermediate calculations. Round your answer to the nearest dollar.
The Nelson Company has $1,365,000 in current assets and $455,000 in current liabilities. Its initial inventory level is $300,000, and it will raise funds as additional notes payable and use them to increase inventory. How much can Nelson's short-term debt (notes payable) increase without pushing its current ratio below 2.0? Do not round intermediate calculations. Round your answer to the nearest dollar.
Related questions
Cash. . . . . . . . . . . . . . . . . . .
$48,500
Accounts payable. . . . . . . .
$141,000
Short-term investments. . . . . .
20,500
Accrued liabilities. . . . . . . . .
51,500
Accounts receivable, net. . . . .
99,500
Long-term notes payable. . .
145,500
Inventories. . . . . . . . . . . . . . .
274,000
Other long-term liabilities. . .
77,000
Prepaid expenses. . . . . . . . . .
16,000
Net income. . . . . . . . . . . . .
106,000
Total assets. . . . . . . . . . . . . .
933,000
Number of common
Short-term notes payable. . . . .
70,500
shares outstanding. . . . .
19,500
1. | Compute Greatland'sGreatland's currentâ ratio, debtâ ratio, and earnings per share. Use dollar andshare amounts in thousands except for EPS. | |
2. | Compute the three ratios after evaluating the effect of eachtransaction that follows. Consider each transaction separately. | |
a. | Borrowed $ 25 comma 500$25,500 on aâ long-term note payable | |
b. | Issued 10 comma 00010,000 commonâ shares, receiving cash of $ 105 comma 000$105,000 | |
c. | Paidâ short-term notesâ payable, $ 51 comma 000$51,000 | |
d. | Purchased merchandise of $ 47 comma 500$47,500 onâ account, debiting Inventory | |
e. | Received cash onâ account, $ 5 comma 700 | |
Requirement 1. Compute Greatland's currentâratio, debtâ ratio, and earnings per share. Use dollar and shareamounts in thousands except for EPS.
Start by determining the formula for eachâ ratio, beginning withthe currentâ ratio, followed by the debtâ ratio, and then earningsper share.
Current assets | / |
| = | Current ratio |
Total liabilities | / |
| = | Debt ratio |
Net income | / |
| = | Earnings per share |
Now compute Greatland's currentâ ratio, debtâ ratio, andearnings per share. â(Round all ratios to two decimalâplaces.)
Current ratio | Debt ratio | Earnings per share | |
3.55 | .52 |
Requirement 2. Compute the three ratios afterevaluating the effect of each transaction. Consider eachtransaction
separately.
â(Round all ratios to two decimalâ places.)
Current ratio | Debt ratio | Earnings per share | |
a. |
b. |
c. |
d. |
e. |
