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 ratio should not exceed .7 to 1 at any time. 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.
b
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