The chief financial officer (CFO) of Padilla Corporation requested that the accounting department prepare a preliminary statement of financial position on December 20, 2012. He knows that certain debt agreements with its lenders require the company to maintain a current ratio of at least 2:1 and wants to know how the company is doing. The preliminary statement of financial position follows:
Instructions
(a) Calculate the current ratio based on the data in the preliminary statement of financial position.
(b) Based on the results in (a), the CFO requested that $20,000 of the cash be used to pay off the balance of the accounts payable account on December 21. Calculate the current ratio after this payment is made, assuming there are no further changes to current assets and current liabilities.
(c) Is it ethical for the CFO to recommend this action?
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