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 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, soles 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 1.0, 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 $130,000 six-month loan bearing an interest rate of 8% per year. The unaudited financial reports of the company appear below: Assets Current assets: Venice Inline, Inc. Comparative Balance Sheet As of December 31 (dollars in thousands) Cash Accounts receivable, net Inventory Prepaid expenses Total current assets This Year Last Year $ 72.9 118.81 $250.0 83.8 260.0 175.0 25.0 28.0 467.9 533.0 410.0 260.0 Property and equipment Total assets Liabilities and Stockholders' Equity Current liabilities: Accounts payable Accrued liabilities Total current liabilities $877.9 $793.8 $170.0 $241.0 25.0 266.8 30.0 200.0 Long-term liabilities Total liabilities Stockholders' equity: Common stock and additional paid-in capital Retained earnings Total stockholders' equity Total liabilities and stockholders' equity 266.0 208.0 150.0 150.0 461.9 443.0 611.9 593.0 $877.9 $793.8