The Stewart Company has 1150500 in current assets and 483210

The Stewart Company has $1,150,500 in current assets and $483,210 in current liabilities. Its initial inventory level is $310,635, and it will raise funds as additional notes payable and use them to increase inventory. How much can its short-term debt (notes payable) increase without pushing its current ratio below 2.0? Round your answer to the nearest cent.

Solution

Current Assets = $1,150,500
Current Liabilities = $483,210

Let increase in inventory and notes payable be $x

Current Ratio = (Current Assets + Increase in Inventory) / (Current Liabilities + Increase in Notes Payable)
2.0 = ($1,150,500 + $x) / ($483,210 + $x)
$966,420 + 2.0 * $x = $1,150,500 + $x
$x = $184,080

So, company can raise $184,080 through additional funds from notes payable.