Howell Company has the following selected accounts after posting adjusting entries: Accounts Payable $45,000
Notes Payable, 3 - month 80,000
Accumulated Depreciation - Equipment 14,000
Payroll and Benefits Payable 27,000
Notes Payable, 5-year, 8% 30,000
Estimated Warranty Liability 34,000
Payroll Tax Expense 6,000
Interest Payable 3,000
Mortgage Payable 200,000
Sales Tax Payable 16,000
Instructions:
(a) Prepare the current liability section of Howell Company's balance sheet, assuming $25,000 of the mortgage is payable next year.
(b) Comment on Howell's liquidity, assuming total current assets are $450,000.

Answer and Explanation:

a. The preparation of the current liability section is presented below;

Notes payable - 3 months $80,000

Accounts payable $45,000

Estimated warranty liabilities $34,000

Payroll and benefit payable $27,000

Current portion of the Mortgage $25,000

Sales Tax payable $16,000

Interest payable $3,000

Total $230,000

b. We know that

Current ratio = current asset ÷ current liabilty

= $450,000 ÷ $230,000

= 1.95 times

This represent the company is in the good liquidity position to pay off the short term liability  

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answer; balance sheets;