You have been given responsibility for overseeing a bank

s small #2762
You have been given responsibility for overseeing a bank’s small business loans division. The
bank has included loan covenants requiring a minimum current ratio of 1.80 in all small business
loans. When you ask which inventory costing method the covenant assumes, the previous loans
manager gives you a blank look. To explain to him that a company’s inventory costing method
is important, you present the following balance sheet information.Current assets other than
inventory………………………… $ 10Inventory (a) Other (noncurrent) assets…………………….. 107Tota
assets………………………………………………… $ (b)Current liabilities………………………………………
liabilities………………………………… 44Stockholders’ equity………………………………………… (d)Tota
stockholders’ equity…………………... $ (c)You ask the former loans manager to find amounts for (a),
(b), (c), and (d) assuming the company began the year with 5 units of inventory at a unit cost of
$ 11, then purchased 8 units at a cost of $ 12 each, and finally purchased 6 units at a cost of $
16 each. A year-end inventory count determined that 4 units are on hand.Required:1. Determine
the amount for (a) using FIFO, and then calculate (b) through (d).2. Determine the amount for
(a) using Weighted Average, and then calculate (b) through (d).3. Determine the amount for (a)
using LIFO, and then calculate (b) through (d).4. Determine the current ratios, rounded to two
decimal places, using (i) FIFO, (ii) Weighted Average, and (iii) LIFO and explain why these
ratios differ.5. Determine whether the company would be in violation or compliance with the loan
covenant if the company were to use (i) FIFO, (ii) Weighted Average, and (iii) LIFO.View
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