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DanielleElmas [232]
3 years ago
5

urrent and Quick Ratios The Nelson Company has $1,250,000 in current assets and $500,000 in current liabilities. Its initial inv

entory level is $400,000, 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 1.2
Business
1 answer:
charle [14.2K]3 years ago
4 0

Answer: $3,250,000

Explanation:

The Current Ratio is used to calculate if the company's current assets can pay off it's current Liabilities.

It is calculated by dividing Current Assets by Current Liabilities.

The company plans to increase it's note payable to enable it but more Inventory. We can therefore assume that the increase in notes Payable (current Liability) will be the same as the increase in inventory (current asset) since the former is funding the latter.

The company does not want the current Ratio dropping below 1.2 so 1.2 is the ideal ratio.

The formula will therefore be;

1.2 = (Current Assets + Change in Notes Payable ) / Current Liabilities + Change in Notes Payable

1.2 = (1,250,000 + Change in Notes Payable) / 500,000 + Change in Notes Payable

600,000 + 1.2(Change in Notes Payable) = 1,250,000 + Change in Notes Payable

1.2( Change in Notes Payable) - Change in Notes Payable = 1,250,000 - 600,000

0.2 (Change in Notes Payable) = 650,000

Change in Notes Payable = $3,250,000

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Greeley [361]

Answer:

Net Cash Flows from operating activities is $68.5 million.

Explanation:

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The net cash flows from operating activities can be calculated using the following method:

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<u>Add Non Cash Deductions</u>

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<u>liabilities</u>

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Net Cash Flows from operating activities $68.5

4 0
3 years ago
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Causes:

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Accounts receivable is the amount that is owed to the business by various parties that is due within a particular period.

In this instance there was an aging analysis done that estimated that $6,700 will be uncollectible. This will result in a bad debt expense of -$6,700.

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4 0
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Answer:

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