The following are selected entries for Warren Clinic for December,31 2008, liste
ID: 2739141 • Letter: T
Question
The following are selected entries for Warren Clinic for December,31 2008, listed alphabetically. Account payable 20,000 Account receivable, net 60,000 Cash 30,000 Equity 230,000 Long term debt 120,000 Long-term investments 100,000 Net property and equipment 150,000 Other assets 40,000 Other long-term liabilities 10,000
1. Create a balance sheet
2. Is the Warren Clinic heavily indebted? Explain you conclusion.
3. Is the Warren Clinic profitable? Explain you answer.
4. Warren Clinic wants to borrow $100,000 in a lump sum as working capital in order to implement a strategy to hire more personnel to improve the patient experience.
a. Present the balance sheet as if the loan were effected.
b. Is Warren Clinic heavily indebted? Explain you conclusion.
Explanation / Answer
Balance sheet of warren clinic as on 31-12-2008
Assets:
long term investment
100000
net property and equipment
150000
other assets
40000
current assets:
Accounts receivable
60000
Cash
30000
Total Assets
380000
equity and liabilities:
current liabilities:
Accounts payable
20000
other long term liabilities
10000
Long-term debt
120000
equity
230000
Total equity and liabilities
380000
At present company is not heavily indebted
Working capital= Current Assets- current liability
(60000+30,000) -20,000=70,000
Current ratio= Current assets Current liabilities
90000 20,000
=4.5
Debt to equity ratio=debt/equity=150000/230000=0.65
Debt to total equity and liabilities=150000/380000=0.39
As debt is not heavy for the company.
3)
Yes company is profitable company at present.
4. Warren Clinic wants to borrow $100,000 in a lump sum as working capital in order to implement a strategy to hire more personnel to improve the patient experience.
a. Present the balance sheet as if the loan were affected.
Warren Clinic
Dec-31-2008
Liability
Amount in $
Assets
Amount in $
Account payable
20000
Account receivable
60000
Working capital loan
100000
Cash
30000
Bank
100000
Other long-term liabilities
10000
Long term Debt
120000
Long term Investment
100000
Equity
230000
Net property and equipment
150000
Other assets
40000
480000
480000
.
Now we can say that, Clinic is heavily indebted because it has current ratio as follow
Current ratio= Current Assets- Current Liability
=190,000P,000
1.58
Current ratio highly reduced from 4.5 to 1.58 and in addition to that it has to pay interest on loan borrowed, that reduces the firm’s profitability.
Debt equity ratio=250000/230000=1.08
Here debt is more than that of equity , hence firm is heavily indebted, that is more dependent on debt rather than equity.
Balance sheet of warren clinic as on 31-12-2008
Assets:
long term investment
100000
net property and equipment
150000
other assets
40000
current assets:
Accounts receivable
60000
Cash
30000
Total Assets
380000
equity and liabilities:
current liabilities:
Accounts payable
20000
other long term liabilities
10000
Long-term debt
120000
equity
230000
Total equity and liabilities
380000
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