Problem 4 (20 Points) You know the following things about a distribution business (1) COGS for the business is the purchase cost of goods; no other items go into COGs. bution margin for the business is 30%. (3) As a result of careful credit checks, bad debt is insignificant. (4) Monthly sales are steady at $1 million per month. (5) The business "floats" on a short term credit line and has no cash or short term investments on hand. (6) Prepaids and accrued expenses are negligible. (7) There are no taxes payable. (8) The long term debt is a $200,000 loan with a straight line principal repayment over a ten year period (9) Receivables are running 45 days. (10) Inventory is 55 days of sales (11) Suppliers are faithfully paid on "net 30 days" terms a. If the agreement with the short term lender specified that the working capital ratio had to be a minimum of two, what is the maximum amount of money the company could draw (borrow on its short term credit line? b. Assuming the company has borrowed this maximum amount of money on the short term credit line, complete the current assets and current liabilities portions of the balance sheet Can you complete a full balance sheet for this company? If yes, do so. If not, show what information is missing by placing an X in those spots. c. Liabilities Assets Short term credit line Cash Accounts payable Taxes payable Inventory Current portion of long term debt Prepaid expenses Fixed assets Land, bld. & equip.@cost Less acc. depreciation Shareholder equity: Capital shares Long term investments Retained earnings Goodwill Problem 4 (20 Points) You know the following things about a distribution business (1) COGS for the business is the purchase cost of goods; no other items go into COGs. bution margin for the business is 30%. (3) As a result of careful credit checks, bad debt is insignificant. (4) Monthly sales are steady at $1 million per month. (5) The business "floats" on a short term credit line and has no cash or short term investments on hand. (6) Prepaids and accrued expenses are negligible. (7) There are no taxes payable. (8) The long term debt is a $200,000 loan with a straight line principal repayment over a ten year period (9) Receivables are running 45 days. (10) Inventory is 55 days of sales (11) Suppliers are faithfully paid on "net 30 days" terms a. If the agreement with the short term lender specified that the working capital ratio had to be a minimum of two, what is the maximum amount of money the company could draw (borrow on its short term credit line? b. Assuming the company has borrowed this maximum amount of money on the short term credit line, complete the current assets and current liabilities portions of the balance sheet Can you complete a full balance sheet for this company? If yes, do so. If not, show what information is missing by placing an X in those spots. c. Liabilities Assets Short term credit line Cash Accounts payable Taxes payable Inventory Current portion of long term debt Prepaid expenses Fixed assets Land, bld. & equip.@cost Less acc. depreciation Shareholder equity: Capital shares Long term investments Retained earnings Goodwill
