Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

A new client, an oil and gas explorer in Western Canada, is currently negotiating a loan worth $3 million to avoid defaulting on its long-term

A new client, an oil and gas explorer in Western Canada, is currently negotiating a loan worth $3 million to avoid defaulting on its long-term debt that is due in three months. Its latest quarterly earnings report indicate that the entity has a working capital deficiency of $500,000, while its cash balance fell to $250,000, down from $500,000 a year earlier. There is a 0.5:1 current ratio. With little expectation of improved sales, the entity plans to cut back on production to preserve cash. It has also been paying suppliers late consistently, and some suppliers have begun demanding cash on delivery from the client. As a result, the share price has plunged and the entity has lost more than half of its market value in the last week.

Which of the following conditions in this case may cast doubt on the client's ability to continue as a going concern?

A. Declining ratios

B. Long-term loans reaching maturity without alternative financing in place

C. Prolonged losses

D. An inability to pay debts when they fall due

E. Supplier reluctance to provide goods on credit

F. The loss of a major market, key customer, franchise, or licence

G. Overreliance on a few customers or suppliers

H. Shortage of a key input or raw material

I. Rapid growth with insufficient planning

J. Falling behind competitors

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Ethical Obligations and Decision Making in Accounting Text and Cases

Authors: Steven M. Mintz, Roselyn E. Morris

5th edition

1259969460, 73403997, 1260480852, 978-1259969461

More Books

Students also viewed these Accounting questions