Mondale Motors has forecasted the following year-end balance sheet: Assets: Cash

Question

Mondale Motors has forecasted the following year-end balance sheet: Assets: Cash and marketable securities $ 300 Inventories 500 Accounts receivable 700 Total current assets $1,500 Net fixed assets 5,000 Total assets $6,500 Liabilities and Equity: Notes payable $ 800 Accounts payable 400 Total current liabilities $1,200 Long-term debt 3,000 Stockholders' equity 2,300 Total liabilities and equity $6,500 The company also forecasts that its days sales outstanding (DSO) on a 365-day basis will be 35.486 days. Now, assume instead that Mondale is able to reduce its DSO to the industry average of 30.417 days without reducing its sales. Under this scenario, the reduction in accounts receivable would generate additional cash. This additional cash would be used to reduce its notes payable. If this scenario were to occur, what would be the company's current ratio?

Explanation / Answer

Assets Amount Liabilities and Equity: Amount Cash and marketable securities $                                                                                             300.00 Notes payable $     800.00 Inventories $                                                                                             500.00 A/P $     400.00 A/R $                                                                                             700.00 Total current liabilties $ 1,200.00 Total current assets $                                                                                         1,500.00 Long-term debt $ 3,000.00 Net fixed assets $                                                                                         5,000.00 Stock holder's equity $ 2,300.00 Total Assets $                                                                                         6,500.00 Total liabilties $ 6,500.00 Previous The company also forecasts that its days sales outstanding (DSO) on a 365-day basis will be 35.486 days New 30.417 Day sales outstanding = A/R/average sales per day Previous sales per day                                                  19.726 Previous sales per year on 365 day basis                                          7,200.023 New sales per day                                                  23.013 New sales per Year                                          8,399.908 Change in balance sheet after notes are paid without reduction in cash Assets Amount Liabilities and Equity: Amount Cash and marketable securities $                                                                                             300.00 Notes payable $     800.00 Inventories $                                                                                             500.00 A/P $               -   A/R $                                                                                             700.00 Total current liabilties $     800.00 Total current assets $                                                                                         1,500.00 Long-term debt $ 3,000.00 Net fixed assets $                                                                                         5,000.00 Stock holder's equity $ 2,300.00 Total Assets $                                                                                         6,500.00 Total liabilties $ 6,100.00 Current ratio= current assets/current liabilties(new) 1.875 Current ratio= current assets/current liabilties(old) 1.25

Related Questions

Navigate

• Browse (All)
• Browse M
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.