Acme Corporation uses the calendar year as their fiscal year forreporting purposes. Acme Corporation is owned 100% by Jesse Smith.Jesse Smith is quite wealthy - he has over $3 million in a personalsavings account which is currently earning 2 one hundredths of 1%interest (or .0002 rate resulting in $600 per year). He also hasmany other investments. Acme Corporation has $300,000 of currentassets. Acme has Accounts Payable of $40,000 and various Payrollliabilities totaling $109,000. Acme also has a Note Payable in theamount of $800,000. There are no other liabilities. Interest hasbeen paid every year when due on December 31. The Note Payable isdue in $200,000 installments on June 30 of each year for the next 4years. The current interest rate on the note is 4%. However,according to the loan terms, if Acme's current ratio falls below 2,the interest rate will automatically increase to 7%. Since the noteis due in installments over the next 4 years, management ispresenting the Note on the balance sheet as a long term liability.Is Acme's management reporting their balance sheet appropriately?What recommendations do you have for management? How do theserecommendations impact the current ratio?
