Scrubber, Inc, presented the following information in a note to its financial statements for the year ending December 31, 2016.
The company has a loan agreement with Mountain State Bank that states:
1. The current ratio should remain at least 2.0 to 1 at all times.
2. The debt-to-equity ration should not exceed. 7 to 1 at any times.
3. The company must maintain $75,000 cash at all times.
The ratios at year-end are: current ratio, 2.3. to 1 and debt-to-equity ratio,.2 to 1. The amount of cash on the bank statement is $75,400, but the cash account after the adjustments from the bank reconciliation has a balance of $74,900. Has Scrubber violated its loan agreement?
a. No
b. Yes, the cash balance is less than $75,000
c. Yes, the current ratio is. 3 or 30% larger than the agreement indicates.
d. Yes, the cash balance is less than $75,000, and the debt-to-equity ratio is overstated.
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