Chapter 4
Current Liabilities
207
b) Based on the information available, calculate the current ratio and comment on the
liquidity of the company.
Analysis
A company is offered a discount of 2% if payment of a $100,000 invoice is made within 30
days of the invoice date. However the company realized that it would not have sufficient
funds until 59 days after the invoice date. The company has an operating line of credit
arranged with its bank for $1,000,000 at an annual interest rate of 5% on any outstanding
balance at the beginning of each month. Should the company borrow from its operating line
of credit to pay off the amount to its supplier and receive the discount?
