9. Consider the following balance sheet: Cash $ 70,000Accounts payable $ 30,000
ID: 2696091 • Letter: 9
Question
9. Consider the following balance sheet:
Cash $ 70,000Accounts payable $ 30,000
Accounts receivable 30,000Long-term debt 20,000
Inventories 50,000Common stock 200,000
Net fixed assets 350,000Retained earnings 250,000
Total assets $500,000Total claims $500,000
Which of the following statements is most correct?
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a. The business is not-for-profit.
b. The business, in the aggregate over time, has been profitable.
c. The business is probably using too much debt financing.
d. The business has $450,000 in its equity accounts (common stock and retained earnings); thus, it has this much money available to spend on new facilities.
e. The business has a short-term bank loan outstanding.
Explanation / Answer
d. Since, Equity = 200000 + 250000 = 450000 hence this is true.
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