Today is January |, 2001. Last night you were at a New Years Eve party at which
Question:
Today is January |, 2001. Last night you were at a New Year’s Eve party at which you ran into a long-lost friend, Art Washet, who is the owner of Washet Company. In a conversation, Art mentioned that his company would like to borrow $5,000 from you now and repay you $6,000 at the end of two years. You told him to stop by your house today with his financial records. He has just dropped off the following balance sheet, along with his accounting records:
Washet Company Balance Sheet For Year Ended December 31, 2000 Working capital.......sscseccseere $ 11,100 Noncurrent liabilities ........s00- $ 9,400 Other ASSEtS.cerccsessecesertereesee 93,900 OWNEN'S CQUILY ..essecsecsecsessesseenennenees 95,600 Meo Gall Mare seeestemecescrssnrecsesvteeresettee $105,000 ST etal istesevesssvoeeeccme sent vtecacartasstarerssteasee $105,000 Your analysis of these items and the accounting records reveals the following information (the amounts in parentheses indicate deductions from each item):
(a) Working capital consists of the following:
Equipment (et) ........-sssssssscsnssecsssescnsssonnsecssvecssscoesssssnsesssnsees $ 14,000 Lesa ice ee es legates ne feck cteceteten tedeaen 10,000 AcCOUNtS Ue tO SUPPIIELS .........-...ctcecceccessssseorsecnscnernecnsene (28,000)
Inventory, including office supplies of $3,700............... 34,700 Salaries OWed tO EMPIOYEES.........sssesseseseeserecneeneeneeeeneeneets (2,600)
Note owed to bank (due June 1, 2001) ......sseesecseeeseeens (17,000)
$ 11,100
(b) Other assets include the following:
CaS Daiaraceracs dese sscudansotaaoe a angi ose tales naga onie eeraancaaceeecaen $ 6,000 PEpAlG WASUNAIN CO se -sscanessnasovecescorasersoanverseaneravernsetahenaeeunerss 1,900 BUIICUINES (GC) ccrssnctarttarsessnacesccctoveeresestorweceserensazefteeresnsosenncasss 46,000 Long-term investment in government bondg..............+- 30,000 A. Washet, withdirawals......-.-:...20s-.é-sssrssssssecsessasssseossusencnssas 10,000 $ 93,900
(c) Noncurrent liabilities consist of the following:
Mortgage payable (due March |, 2005)........:sssssssesseens $ 33,000 Accounts due from CUStOMETS.......sccsesseseeeessesesteseeneseees (16,600)
Notes receivable (due December 31, 2003)...........0+ (7,000)
$ 9,400
(d) Owner's equity includes the following:
AWWashietsca pital es. sactecact sac cte. tans arectonacstecasoiceosdeipeapasthpaveas $104,900 Securities held as a temporary investmMent............:0++0+ (11,000)
Interest payable (due with note on June |, 2001)....... 1,700 $ 95,600 Required: (1) Using your analysis, prepare a properly classified December 31, 2000 balance sheet (report form) for Washet Company.
(2) Compute the current ratio and the quick ratio for the company on December 31, 2000. Basing your decision solely on this information, would you loan $5,000 to the company?
Step by Step Answer:
Accounting Information For Business Decisions
ISBN: 9780030224294
1st Edition
Authors: Billie Cunningham, Loren A. Nikolai, John Bazley