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 payableproviding that on his most recent financial statements the current ratio was above 2.0, 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 $125,000 six-month loan bearing an interest rate of 6% per year. The unaudited financial reports of the company appear below:
Venice InLine, Inc.
Comparative Balance Sheet
As of December 31
(dollars in thousands)
This Year Last Year
Assets
Current assets:
Cash $ 123.0 $ 260.0
Accounts receivable, net 105.0 90.0
Inventory 245.0 175.0
Prepaid expenses 30.0 53.0
Total current assets 503.0 578.0
Property and equipment 360.0 190.0
Total assets $ 863.0 $ 768.0
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 261.0 $ 170.0
Accrued liabilities 15.0 25.0
Total current liabilities 276.0 195.0
Long-term liabilities - -
Total liabilities 276.0 195.0
Stockholders' equity:
Common stock and additional paid-in capital 150.0 150.0
Retained earnings 437.0 423.0
Total stockholders' equity 587.0 573.0
Total liabilities and stockholders' equity $ 863.0 $ 768.0
Venice InLine, Inc.
Income Statement
For the Year Ended December 31
(dollars in thousands)
This Year
Sales (all on account) $ 660.0
Cost of goods sold 430.0
Gross margin 230.0
Selling and administrative expenses:
Selling expenses 93.0
Administrative expenses 117.0
Total selling and administrative expenses 210.0
Net operating income 20.0
Interest expense
Net income before taxes 20.0
Income taxes (30%) 6.0
Net income $ 14.0
Required:
1-a. Based on the above unaudited financial statement of the current year calculate the following.
Current ratio
Acid-test ratio
Number of times of the net operating income to the interest on the proposed 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 machine 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 $70,000. The bank does not require audited financial statements.
a. Calculate the following if the old machine is considered as inventory.
c. Calculate the following if the old machine is sold off.
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, 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 2.0, 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 6% per year. The unaudited financial reports of the company appear below Venice Inuine, Inc. Comparative Balance Sheet As of December 31 (toliars in thousands) This Year Year Assets Current assets Cash $123.0 5260.0 Accounts receivable, net 105.0 00.0 Inventory 265.0 175.0 Prepaid expenses 30.0 53.0 Total current assets 503.0 570.0 Property and equipent 360.0 190.0 Total assets $63.0 $763.0 Llabilities and Stockholders' Equity Current antities Accounts payable Accrued liabilities Total current liabilities Long-term ismoilitles Total abilities 276,0 150 Stockholders equity Coron stock and additional paid in capital 150.0 Retained earnings Total stockholders equity 500 Total lilities and solders' covity 50. Last 5261.0 170.0 350 25.0 216,0 195.0 432.0 57.0 Venice Inline. Ta Income Statement For the Year Ended December (collars in thousands) This Total stockholders' equity Total liabilities and stockholders' equity 587.0 $863.0 573.8 $768.0 Venice Inline, Inc. Income Statement For the Year Ended December 31 (dollars in thousands) This Year 5660.0 430.0 230.0 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 93.0 117.0 210.0 28. 20.0 6.0 $ 14.0 Required: 1-a. Based on the above unaudited financial statement of the current year calculate the following Current ratio Acid-test ratio Number of times of the net operating income to the interest on the proposed loan 1-6. Based on the statement made by the loan officer would the company qualify 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 machine 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-low 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 $70,000. The bank does not require audited financial statements Calculate the following if the old machine is considered as inventory b. Based on the 20 answer would the company qualify for the loan? c Calculate the following if the old machine is sold off d. Based on the 2c answer would the company qualify for the loan? Complete this question by entering your answers in the tabs below. Complete this question by entering your answers in the tabs below. Req 1A Req 1B Reg 2A Req 2B Reg 2C Rea zob Based on the above unaudited financial statement of the current year calculate the following: Current ratio Acid-test ratio Number of times of the net operating income to the interest on the proposed loan (Round your answers to 2 decimal places) Current ratio Acid-test ratio Number of times of the net operating income to the interest on the proposed loan Req 1B > Complete this question by entering your answers in the tabs below. Reg 1A Req 1B Req 2A Reg 2B Req 20 Reg 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 machine 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 $70,000. 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 places.) Show less Current ratio Acid-test ratio omplete question by entering your answers in the tabs below. Reg 1A Req 18 Req 2A Reg 2B Reg 2C Reg 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 machine 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 $70,000. 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
