10/21/2019 MGT 4560-001 Group Critical Thinking Exercises Team : Team Member name: With Gary's help, Claude has purchase, installed and setup his new accounting software program. In fact, he has just printed his first income statement and balance sheel, reproduced below. Basic Industries Income Statement for year ending 12/31/20XX 356,428 105,200 251.228 Sales revenue Less cost of goods sold Gross margin Less operating expenses Marketing Sales and administrative Depreciation Total operating expenses Operating income Less interest expense 30,000 30,000 10,000 70,000 181.228 6,000 175.228 Income before taxes 40,000 Income tax expense 135.228 Net income Basle Industries Balance Sheer for 12/31/20XX $ 52,400.00 $ 17,300.00 $ 15,600.00 $ 79,300.00 Current Cash Accounts receivable Inventory Total current assets Fixed assets Property, plant and equipment Accumulared depreciation Net fixed assets Toral assets $ 80,000.00 $ (10,000.00) $ 70,000.00 $149,300.00 Liabilities and Owner's Equity Current liabilities Accounts payable Nore payable to bank $ $ 5,300.00 2,700.00 $ 6,000.00 Deposits from customers Total current liabilities $ 14,000.00 $ 50,000.00 $ 64,000.00 Long term mortgage Total liabilities Owner's Equity Retained earnings Total Owners' Equity Total liability and equities $ 85,300.00 $ 85,300.00 $149,300.00 the really understand what's going on, Gary asked Claude the following questions, de answered most of them correctly, can you? a. How much revenue did the business proche? b. Whar costs did the business have for financing? 6.000 c. What can you turn into cash in one year? d. What did it cost to make your product? c. What is the value of everything the company owns? f. How much profir did the company make? g. How much is the business worth to Claude? h. How much does the business need for its continuing operation? Hint: Ner Fixed Assets is the purchase price of all fixed assets (Land, buildings, equipment, machinery, vehicles, leasehold improvements) less accumulated Depreciation i. What debts will take longer than a year to pay? j. Can this business be considered liguld? Hint: Current ratio = current assets/current liabilities By the rule of thumb, it should be 2 or greater. The current ratio is an indicator of a business ability to repay debt when it is due Applying for a Loan 15,000 5,000 20,000 Current assets Cash Accounts receivable Total current assets Fixed Assets Property, plant & equipment Accumulated depreciation Net fixed assets Total assets 112.000 (35,000) 77,000 97,000 Liabilities and Owner's Equity Current liabilities Accounts payable Note payable Deposits from customers Total current liabilities Total liabilities Owner's equity Common stock Retained earnings 2,500 27,500 3,000 33,000 33,000 50,000 14,000 64,000 Total owner's equity Total liabilities and equity 97,000 This exercise ise helps you apply information found in the balance sheet to the process of applying Joan. Please answer the questions as follow: 1. What is the amount of current assets and long-term assets that you have? 2. Calculate the current ratio. Using the rule of thumb given in the text, is this a good or bad ratio? Hint: Current ratio- current assets/ current liabilities By the rule of thumb, it should be 2 or greater. The current ratio is an indicator of a business' ability to repay debt when it is due 3. Why would the current ratio matter to your banker
