4125 PM Tue Oct 27 Case 15-20 Disc 3 Done Disc. #3 Venice Inline, Inc. Venice InLine Inc., was founded by Russ Perez to product a specialized in-line skate he had designed for doing aerial tricks. Up to this point, Russ has financed the company with his own savings and with cash generated by his business. However, Russ now faces a cash crisis. In the year just ended, an acute shortage of high-impact roller bearings developed just as the company was beginning production for the Christmas season. Russ had been assured by his suppliers that the roller bearings would be delivered in time to make Christmas shipments, but the suppliers were unable to fully deliver on this promise. As a consequence, Venice InLine had large stocks of unfinished skates at the end of the year and was unable to fill all of the orders that had come in from retailers for the Christmas season. Consequently, sales were below expectations for the year, and Russ does not have enough cash to pay his creditors. Well before the accounts payable were due, Russ visited a local bank and inquired about obtaining a loan. The loan officer at the bank assured Russ that there should not be any problems getting a loan to pay off his accounts payable - providing that on this most recent financial statements, the current ratio was above 2.0, the acid-test ratio was above 1.0, and the net operating income was at least four times the interest on the proposed loan. Russ promised to return later with a copy of this financial statements. Russ would like to apply for an $80,000 six-month loan bearing an interest rate of 10% per year. The unaudited financial reports of the company are included as a separate file. reports of the company are included as a separate file. Required: 1. Based on the unaudited financial statements and the statement made by the loan officer, would the company qualify for the load? Why or why not? 2. Last year Russ purchased and installed new, more efficient equipment to replace an older plastic injection molding machine. Russ had originally planned to sell the old machine but fund that it is still needed whenever the plastic injection molding process is a bottleneck. When Russ discussed his cash flow problems with his brother-in-law, he suggested to Russ that the old machine be sold or at least reclassified as inventory on the balance sheet because it could be readily sold. At present, the machine is carried in the Property and Equipment account and could be sold for its net book value of $45,000. The bank does not required audited financial statements. What advice would you give to Russ concerning the machine? Are there any other ideas that you could recommend to Russ? 4125 PM Tue Oct 27 Case 15-20 Disc 3 Done Disc. #3 Venice Inline, Inc. Venice InLine Inc., was founded by Russ Perez to product a specialized in-line skate he had designed for doing aerial tricks. Up to this point, Russ has financed the company with his own savings and with cash generated by his business. However, Russ now faces a cash crisis. In the year just ended, an acute shortage of high-impact roller bearings developed just as the company was beginning production for the Christmas season. Russ had been assured by his suppliers that the roller bearings would be delivered in time to make Christmas shipments, but the suppliers were unable to fully deliver on this promise. As a consequence, Venice InLine had large stocks of unfinished skates at the end of the year and was unable to fill all of the orders that had come in from retailers for the Christmas season. Consequently, sales were below expectations for the year, and Russ does not have enough cash to pay his creditors. Well before the accounts payable were due, Russ visited a local bank and inquired about obtaining a loan. The loan officer at the bank assured Russ that there should not be any problems getting a loan to pay off his accounts payable - providing that on this most recent financial statements, the current ratio was above 2.0, the acid-test ratio was above 1.0, and the net operating income was at least four times the interest on the proposed loan. Russ promised to return later with a copy of this financial statements. Russ would like to apply for an $80,000 six-month loan bearing an interest rate of 10% per year. The unaudited financial reports of the company are included as a separate file. reports of the company are included as a separate file. Required: 1. Based on the unaudited financial statements and the statement made by the loan officer, would the company qualify for the load? Why or why not? 2. Last year Russ purchased and installed new, more efficient equipment to replace an older plastic injection molding machine. Russ had originally planned to sell the old machine but fund that it is still needed whenever the plastic injection molding process is a bottleneck. When Russ discussed his cash flow problems with his brother-in-law, he suggested to Russ that the old machine be sold or at least reclassified as inventory on the balance sheet because it could be readily sold. At present, the machine is carried in the Property and Equipment account and could be sold for its net book value of $45,000. The bank does not required audited financial statements. What advice would you give to Russ concerning the machine? Are there any other ideas that you could recommend to Russ