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Venice Inline, Inc, was founded by Russ Perez to produce 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 procliction 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 problem getting a loan to pay off his accounts payable-providing that on his most recent financial statements the current ratio was above 20, the acid-test ratio was above 10, and net operating income was at least four times the interest on the proposed loan Russ promised to return later with a copy of his financial statements Russ would like to apply for a $125.000 six-month loan bearing an interest rate of 8% per year. The unaudited financial reports of the company appear below. Comparative Balance Sheet As of December 31 (dollars in thousands) This Year Last Year $ 90.0 80.0 290.0 35.0 495.0 410.0 $905.0 $260.0 95.0 185.0 53.0 593.0 180.0 $773.0 Assets Current assets: Cash Accounts receivable, net Inventory Prepaid expenses Total current assets Property and equipment Total assets Liabilities and Stockholders' Equity Current liabilities: Accounts payable Accrued liabilities Total current liabilities Long-term liabilities Total liabilities Stockholders' equity: Common stock and additional paid-in capital Retained earnings Total stockholders' equity Total liabilities and stockholders' equity $251.0 35.0 286.0 $135.0 40.0 175.0 286.0 175.0 150.0 469.0 619.0 $905.0 150.0 448.0 598.0 $773.0 w Venice InLine, Inc. Income Statement For the Year Ended December 31 (dollars in thousands) This Year $665.0 460.0 205.0 Sales (all on account) Cost of goods sold Gross margin Selling and administrative expenses: Selling expenses Administrative expenses Total selling and administrative expenses Net operating income Interest expense Net income before taxes Income taxes (30%) Net income 63.0 112.0 175.0 30.0 - 30.0 9.0 $ 21.0 1-a. Based on the above unaudited financial statement of the current year calculate the following Current ratio Acid-test ratio Ratio of net operating income to loan interest 1-b. Based on the statement made by the loan officer, would the company quality for the loan? 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 equipment, but found 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 equipment be sold or at least reclassified as inventory on the balance sheet because it could be readily sold. At present, the equipment is carried in the Property and Equipment account and could be sold for its net book value of $120.000 The bank does not require audited financial a. Calculate the following if the old machine is considered as inventory b. Based on the 2a above would the company qualify for the loan? c. Calculate the following if the old machine is sold off d. Based on the 2c above would the company quality for the loan? statements Req 1A Req 18 Reg 2A Req 2B Req 2c Req 2D Based on the above unaudited financial statement of the current year calculate the following: Current ratio Acid-test ratio Ratio of net operating income to loan interest (Round your answers to 2 decimal places.) Current ratio Acid-test ratio Ratio of net operating income to loan interest Complete this question by entering your answers in the tabs below. Req 1A Req 1B Reg 2A Reg 2B Req 2c Reg 2D Based on the statement made by the loan officer, would the company qualify for the loan? OYes ONO 5 Complete this question by entering your answers in the tabs below. Roq 1A Reg 18 Req 2A Req 2B Req 2C Req 2D 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 equipment, but found 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 equipment be sold or at least reclassified as inventory on the balance sheet because it could be readily sold. At present, the equipment is carried in the Property and Equipment account and could be sold for its net book value of $120,000. The bank does not require audited financial statements. Calculate the following if the old machine is considered as inventory. (Round your answers to 2 decimal place.) Show less Current ratio Acid-test ratio Complete this question by entering your answers in the tabs below. Reg 1A Reg 16 Reg 2A Reg 28 Reg 20 Reg 2D 03 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 equipment, but found 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 equipment be sold or at least reclassified as inventory on the balance sheet because it could be readily sold. At present the equipment is carried in the Property and Equipment account and could be sold for its net book value of $120,000. The bank does not require audited financial statements. Based on the 2a answer, would the company qualify for the loan? Show less Yes ONO . Reg 1A Reg 1B Req 2A Reg 28 Req 2C Req 2D 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 equipment, but found 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 equipment be sold or at least reclassified as inventory on the balance sheet because it could be readily sold. At present, the equipment is carried in the Property and Equipment account and could be sold for its net book value of $120,000. The bank does not require audited financial statements. Calculate the following if the old machine is sold off. (Round your answers to 1 decimal place.) Show less Current ratio Acid-test ratio Complete this question by entering your answers in the tabs below. Reg 1A Reg 13 Req 2A Req 28 Reg 20 Ra 2D ence 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 equipment, but found 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 equipment be sold or at least reclassified as inventory on the balance sheet because it could be readily sold. At present, the equipment is carried in the Property and Equipment account and could be sold for its net book value of $120,000. The bank does not require audited financial statements. Based on the 2c answer, would the company qualify for the loan? Show less OYes ONO