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Problem 39 The Nelson Company has $1,687,500 in current assets and $675,000 in current liabilities. Its initial inventory level is $472,500, and it will raise funds as additional notes payable and use them to increase inventory.

1) Current ratio = Current assets/ current liabilities =1.8 (given maximum)
Let Nelson's shortterm debt (notes payable) be increased by "X" amount
So the current assets then will be "1,687,500 + X"
the current Liabilities then will be "675,000 +X"
So by the problem,
Current ratio = (1,687,500 + X) / (675,000 +X) =1.8
or, 1,687,500 + X = 1215000 + 1.8X
or, 472500 = 0.8X
X = 590625
So Nelson's shortterm debt (notes payable) can increase by $ 590625.00 ( Answer)
2)Present current asset = 1,687,500 + 590625 = $ 2278125
Present current liabilities= 675,000 + 590625 = $ 1265625
Inventory = $ 472,500
Quick ratio = (Current asset  inventory)/ (Current liability)
= (2278125  472,500) / (1265625)
= 1.43 (Answer)
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