Greencastle Hamburgers Ltd. (GHL) is a chain of fast-food restaurants. A few years ago, the company decided it didn't want to own any new restaurants. Instead, when a new restaurant opens up, it is owned by a franchisee rather than the company. A franchisee is an individual investor who owns the land, building, furniture, and other assets and operates the restaurant. In return, the franchisee pays GHL a royalty fee, based on a percentage of sales, for the right to use the GHL name and products under a franchise agreement. If the franchisee needs funds to help build the restaurant, they can borrow money from GHL for a one-year period by signing a note receivable to GHL. Selected items from the 2024 GHL financial statements along with comparative amounts from 2023 are shown below (in thousands of dollars): Cash Accounts receivable Allowance for doubtful accounts Notes receivable Inventory at company-operated stores Total current assets Current liabilities Net credit sales 2024 $1,566,000 6,050,000 (400,000) 2,670,000 1,010,000 10,896,000 6,810,000 60,220,000 2023 $3,130,000 4,960,000 (500,000) 2,020,000 1,100,000 10,710,000 5,100,000 50,150,000 Accounts receivable consist only of royalties receivable from franchisees. During 2024, accounts receivable amounting to $100,000 were written off. The notes receivable are from franchisees and are due within one year. During 2024, notes amounting to $1,391,500 were received from new franchise operators and these are still outstanding. Also during 2024, notes of $741,500 were collected in full. A number of notes were dishonoured during the year, but the company's new vice-president of finance believes that all of these will be recoverable. In the past, no dishonoured note has ever been collected. The company's bank requires GHL to maintain a current ratio of 1.5:1.
Greencastle Hamburgers Ltd. (GHL) is a chain of fast-food restaurants. A few years ago, the company decided it didn't want to own any new restaurants. Instead, when a new restaurant opens up, it is owned by a franchisee rather than the company. A franchisee is an individual investor who owns the land, building, furniture, and other assets and operates the restaurant. In return, the franchisee pays GHL a royalty fee, based on a percentage of sales, for the right to use the GHL name and products under a franchise agreement. If the franchisee needs funds to help build the restaurant, they can borrow money from GHL for a one-year period by signing a note receivable to GHL. Selected items from the 2024 GHL financial statements along with comparative amounts from 2023 are shown below (in thousands of dollars): Cash Accounts receivable Allowance for doubtful accounts Notes receivable Inventory at company-operated stores Total current assets Current liabilities Net credit sales 2024 $1,566,000 6,050,000 (400,000) 2,670,000 1,010,000 10,896,000 6,810,000 60,220,000 2023 $3,130,000 4,960,000 (500,000) 2,020,000 1,100,000 10,710,000 5,100,000 50,150,000 Accounts receivable consist only of royalties receivable from franchisees. During 2024, accounts receivable amounting to $100,000 were written off. The notes receivable are from franchisees and are due within one year. During 2024, notes amounting to $1,391,500 were received from new franchise operators and these are still outstanding. Also during 2024, notes of $741,500 were collected in full. A number of notes were dishonoured during the year, but the company's new vice-president of finance believes that all of these will be recoverable. In the past, no dishonoured note has ever been collected. The company's bank requires GHL to maintain a current ratio of 1.5:1.
Chapter19: Deferred Compensation
Section: Chapter Questions
Problem 1RP
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Based on the above information, calculate the company's current ratio for 2024 and 2023. (Round answers to 1 decimal place, e.g.
52.7.)
Current ratio
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2024
Does it currently meet the bank's requirement?
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2023
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Transcribed Image Text:Greencastle Hamburgers Ltd. (GHL) is a chain of fast-food restaurants. A few years ago, the company decided it didn't want to own any
new restaurants. Instead, when a new restaurant opens up, it is owned by a franchisee rather than the company. A franchisee is an
individual investor who owns the land, building, furniture, and other assets and operates the restaurant. In return, the franchisee pays
GHL a royalty fee, based on a percentage of sales, for the right to use the GHL name and products under a franchise agreement. If the
franchisee needs funds to help build the restaurant, they can borrow money from GHL for a one-year period by signing a note
receivable to GHL.
Selected items from the 2024 GHL financial statements along with comparative amounts from 2023 are shown below (in thousands of
dollars):
Cash
Accounts receivable
Allowance for doubtful accounts
Notes receivable
Inventory at company-operated stores
Total current assets
Current liabilities
Net credit sales
2024
$1.566.000
6,050,000
(400,000)
2,670,000
1,010,000
10,896,000
6,810,000
60,220,000
2023
$3,130,000
4,960,000
(500,000)
2,020,000
1,100,000
10,710,000
5,100,000
50,150,000
Accounts receivable consist only of royalties receivable from franchisees. During 2024, accounts receivable amounting to $100,000
were written off.
The notes receivable are from franchisees and are due within one year. During 2024, notes amounting to $1,391,500 were received
from new franchise operators and these are still outstanding. Also during 2024, notes of $741,500 were collected in full. A number of
notes were dishonoured during the year, but the company's new vice-president of finance believes that all of these will be recoverable.
In the past, no dishonoured note has ever been collected.
The company's bank requires GHL to maintain a current ratio of 1.5:1.
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