A. At present, the current ratio is 2.27 ($2,050,000 of current assets and $900,000 of current liabilities). We need to know how much they can distribute as cash and still maintain a current ratio of 2.00. The formula we need to use is [($2,050,000 - X) / $900,000 = 2]. Solving for X we get $250,000. This is the amount of the dividend that they may pay this year. Since there are 100,000 shares outstanding, the amount that may be paid per share is $2.50.
B. This answer does not include prepaid assets as a current asset or the current portion of the long-term debt in the current liabilities. See the correct answer for a complete explanation.
C. This answer does not include prepaid assets as a current asset. See the correct answer for a complete explanation.
D. This answer does not include the current portion of the long-term debt in the current liabilities. See the correct answer for a complete explanation.
