1. Prepare a balance sheet for National Shops as of December 31, 2009. 2. Nation
ID: 2343839 • Letter: 1
Question
1. Prepare a balance sheet for National Shops as of December 31, 2009.
2. National Shops wishes to purchase merchandise from your company on account. The amount of the purchases would probably be about $10,000 per month, and the terms would require National to make payment in full within 30 days. Would you recommend that your company grant credit to National under these terms? Explain the reasoning for your response.
Explanation / Answer
1.
Balance sheet lists the assets , and liabilities and equity.
Balance sheet :
Assets :
Cash = $150,000.00
Accounts receivable = $30,000.00
Inventory = $325,000.00
Net property, plant and equipent = $600,000.00
TOTAL ASSETS = 1105,000 (by adding the above values)
Liabilites & owners equity :
Liabilities -
Notes Payable = $100,000.00
accounts payable = $45,000.00
TOTAL LIABILITIES = 145,000
Owner's equity -
Contributed Capital = $750,000.00
retained earnings = $ y (let it be y, it is found below) = $210,000
The basic accounting equation :
Assets = Liabilities + Owners equity , where owners equity = capital + retained earnings
Therefore, 1105,000 = 145,000 + 750,000 + y
y = $210,000.
2.
We must see if National will able to repay the loans in time.
National has 150,000 in cash. So it should be able to pay the 12 x 10,000 = 120,000 it owes you.
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If you want the current ratio then you can see this :
Current ratio, CR = current assets/current liabilities
current assets, CA = Total assets - Net property, plant and equipent ,
because we dont consider Net property, plant and equipent as a current asset.
CA = 1105,000 - 600,000
CA = 505,000
current liabilities, CL = 145,000
CR = 505,000/145,000 = 3.48
The current assets are much greater than current liblities
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