Before approving credit the office manager calls the bank reference provided by

Question

Before approving credit the office manager calls the bank reference provided by Nocturnal, and learns that the company currently has a cash balance of $200. When she asks Nocturnal about the $11,800 discrepancy Nocturnal explains that the financial information includes the anticipated (but as yet unrealized) profit of $11,800 on a job under bid. Nocturnal's accountant explains that the company keeps its books according to Contingent Reality Accounting Principles (CRAP) The office manager reviews financial statements for the company and adjusts them to GAAP Cash Total Assets 200 3,700 Short-term Liabilities Total Liabilities 2,000 5,000 What is the ratio of cash to short-term liabilities? What is the ratio of Debt to Total Assets? Whatis the ratio of cash to short-term liabilities? 200D o5 o.1-6302 : 1.35 What weould sroekr tlat Nocturmal mets Beacon's sandards for trade creia NO Do lenders or owners appear to have greater interest in the assets of Nocturnal? 3700 .

Explanation / Answer

1. Ratio of cash to Short term liabilities

Cash / short term liabilities = $200/$2000

= 0.1

2. Ratio of Debt to total Assets = Debt/total Assets

= $5000/$3,700

= $ 1.35

3. No

4. Shareholders equity = Total assets less total liabilities

= $3,700 less $5,000

= $1,300

5. No

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