Question & Answer: 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 poin…..

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 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.

Don't use plagiarized sources. Get Your Custom Essay on
Question & Answer: 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 poin…..
GET AN ESSAY WRITTEN FOR YOU FROM AS LOW AS $13/PAGE
Order Essay

Russ would like to apply for a $80,000 six-month loan bearing an interest rate of 10% 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 $ 70 $ 150
Accounts receivable, net 50 40
Inventory 160 100
Prepaid expenses 10 12
Total current assets 290 302
Property and equipment 270 180
Total assets $ 560 $ 482
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable $ 154 $ 90
Accrued liabilities 10 10
Total current liabilities 164 100
Long-term liabilities
Total liabilities 164 100
Stockholders’ equity:
Common stock and additional paid-in capital 100 100
Retained earnings 296 282
Total stockholders’ equity 396 382
Total liabilities and stockholders’ equity $ 560 $ 482
Venice InLine, Inc.
Income Statement
For the Year Ended December 31
(dollars in thousands)
This Year
Sales (all on account) $ 420
Cost of goods sold 290
Gross margin 130
Selling and administrative expenses:
Selling expenses 42
Administrative expenses 68
Total selling and administrative expenses 110
Net operating income 20
Interest expense
Net income before taxes 20
Income taxes (30%) 6
Net income $ 14

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-b. 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 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 $45,000. The bank does not require audited financial statements.

a. Calculate the following if the old machine is considered as inventory.

b. Based on the 2a 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?

Expert Answer

 

Formula sheet

Grand Paper Writers
Order NOW For A 10% Discount!
Pages (550 words)
Approximate price: -

Our Advantages

Plagiarism Free Papers

All papers are written by the best professional writers to ensure 100% originality. We always provide plagiarism reports whenever we deliver completed papers.

Free Revisions

All papers by Grand Paper Writers are completed and submitted on time. This timely delivery of papers gives you time to go through the paper before the official deadline.

Title-page

As an additional service, we will provide a title page that precedes the contents of your paper. Here, you will provide your personal details.

Bibliography

We also ensure that we provide an extra page for the references or bibliographies following referencing rules.

Originality & Security

At Grandpaperwriters.com, we guarantee students for the provision of security and original work. All your personal information is handled with confidentiality and is not shared with third parties. Additionally, we ensure that we provide original content with accompanying plagiarism reports to show originality.

24/7 Customer Support

Our customer support team is always available 24/7 to provide instant responses to any queries raised by students.

Try it now!

Calculate the price of your order

We'll send you the first draft for approval by at
Total price:
$0.00

How it works?

Follow these simple steps to get your paper done

Place your order

Fill in the order form and provide all details of your assignment.

Proceed with the payment

Choose the payment system that suits you most.

Receive the final file

Once your paper is ready, we will email it to you.

Our Services

Grandpaperwriters.com has the best professional essay writers for quality services.

Pricing

Flexible Pricing

Here, a Grandpaperwriters.com, we do not compromise on the time of our clients. We always deliver all completed papers on or before the deadlines.

Communication

Admission Help & Client-Writer Contact

Grandpaperwriters.com provides an interactive portal where students can communicate directly to their writers.

Deadlines

Paper Submission

Here, a Grandpaperwriters.com, we do not compromise on the time of our clients. We always deliver all completed papers on or before the deadlines.

Reviews

Customer Feedback

Grandpaperwriters.com appreciates feedback from our clients to help us improve the delivery of essay writing services. As such, we are constantly changing our policies to ensure maximum customer and writer satisfaction.