Question

Dragnet Corporation has the following selected accounts at December 31, 2018 after posting adjusting entries:

Accounts Payable..... 56,400
Accumulated Depreciation - Equipment ... 24,000
Accounts Receivable ... 67,500
Bank Loan Payable, 3-month ... 165,000
GST Payable ... 14,000
Notes Payable, due 2025, 4% ... 85,000
Employee Benefits Expense ... 8,000
Interest Payable ... 6,600
Mortgage Payable ... 425,000
Salaries Payable ... 23,000

PART A: Prepare the current liability section of Dragnet Corporation's statement of financial position, assuming $25,000 of the mortgage is payable next year.
PART B: Comment on Dragnet's liquidity, assuming total current assets are $261,000. Support your comment with calculations

Answer 1

PART A
			Dragnet Corporation
		Balance Sheet (Partial)
			As on December 31, 2018
CURRENT LIABILITIES
Accounts Payable					56,400
Bank Loan Payable, 3-month					1,65,000
GST Payable					14,000
Interest Payable					6,600
Mortgage Payable					25,000
Salaries Payable					23,000
Total Liabilities						2,90,000
PART B
Current Ratio = Current Assets / Current Liabilities
	= 261,000 / 290,000
	=0.90
A current ratio of 0.90 indicates that company will not be able to repay its current liability as and when due.
Because for every $1 current liability, company has only $0.90 worth of current assets. So there will be liquidity
problem in the company.