Reference: 13-02
Financial statements for Larned Company appear below:
Larned Company
Balance Sheet
December 31, 20X6 and 20X5 (dollars in thousands)

\begin{array} { | l | l | l | } \hline & 20 X 6 & 20 \times 5 \\\hline \text { Current assets: } & & \\\hline \text { Cash and marketable securities } & \$ 130 & \$ 100 \\\hline \text { Accounts receivable, net } & 150 & 130 \\\hline \text { Inventory } & 100 & 100 \\\hline \text { Prepaid expenses } & 20 & 20 \\\hline \text { Total current assets } & 400 & 350 \\\hline \text { Noncurrent assets: } & & \\\hline \text { Plant \& equipment, net } & 1,640 & 1,600 \\\hline\end{array}

\begin{array}{|c|l|l|}\hline \text { Plant \& equipment, net } & {1,640}&{1,600} \\\hline \text { Total assets } & \$ 2,040 & \$ 1,950 \\\hline & & \\\hline \text { Current liabilities: } & & \\\hline \text { Accounts payable } & \$ 120 & \$ 120 \\\hline \text { Accrued liabilities } & 110 & 80 \\\hline \text { Notes payable, short term } & {170} & 160 \\\hline \text { Total current liabilities } & 400 & 360 \\\hline \text { Noncurrent liabilities: } & & \\\hline \text { Bonds payable } & 370 & 400 \\\hline \text { Total liabilities } & 770 & 760 \\\hline \text { Shareholders' equity: } & & \\\hline \text { Preferred shares, \$20 par, 10\% } & 120 & 120 \\\hline \text { Common shares, \$10 par } & 180 & 180 \\\hline \text { Additional paid-in capital--common shares } & 110 & 110 \\\hline \text { Retained earnings } & 860 & 780 \\\hline \text { Total shareholders' equity } & 1,270 & 1,190 \\\hline \text { Total liabilities \& shareholders' equity } & \$ 2,040 & \$ 1,950 \\\hline\end{array}

Larned Company
Income Statement
For the Year Ended December 31, 20X6 (dollars in thousands)

\begin{array} { | l | r | } \hline \text { Sales (all on account) } & \$ 2,930 \\\hline \text { Cost of goods sold } & 2,050 \\\hline \text { Gross margin } & 880 \\\hline \text { Operating expenses } & 350 \\\hline \text { Net operating income } & 530 \\\hline \text { Interest expense } & 40 \\\hline \text { Net income before taxes } & 490 \\\hline \text { Income taxes (30\%) } & 147 \\\hline \text { Net income } & \$ 343 \\\hline\end{array}

Dividends during 20X6 totalled $263 thousand, of which $12 thousand were preferred dividends. The market price of a share of common stock on December 31, 20X6 was $160.
Included in operating expenses was depreciation expense of $20,000.
7
-Assuming that a company has a current ratio greater than 1.0 to 1, repaying a short-term note payable will increase the current ratio.

Rahner Company Has a Current Ratio of 1

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