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building ToUT ONS LUIS Venice Inline, Inc., was founded by Russ Perez to produce a specialized in-line skate he had designed for doing aerial tricks. Up to this point, Russ has financed the company with his own savings and with cash generated by his business. However, Russ now faces a cash crisis. In the year just ended, an acute shortage of high-impact roller bearings developed just as the company was beginning production for the Christmas season. Russ had been assured by his suppliers that the roller bearings would be delivered in time to make Christmas shipments, but the suppliers were unable to fully deliver on this promise. As a consequence, Venice InLine had large stocks of unfinished skates at the end of the year and was unable to fill all of the orders that had come in from retailers for the Christmas season. Consequently, sales were below expectations for the year, and Russ does not have enough cash to pay his creditors. Well before the accounts payable were due, Russ visited a local bank and inquired about obtaining a loan. The loan officer at the bank assured Russ that there should not be any problem getting a loan to pay off his accounts payable-providing that on his most recent financial statements the current ratio was above 2.0, the acid-test ratio was above 10, and net operating income was at least four times the interest on the proposed loan. Russ promised to return later with a copy of his financial statements. Russ would like to apply for a $80,000 six-month loan bearing an interest rate of 10% per year. The unaudited financial reports of the company appear below. Venic InLine, Inc. Comparative Balance Sheet As of December 31 (dollars in thousands) This Year Last Year 70 50 160 10 290 270 $ 150 40 100 12 302 180 $ 482 $ 560 Assets Current assets: Cash Accounts receivable, net Inventory Prepaid expenses Total current assets Property and equipment Total assets Liabilities and Stockholders' Equity Current liabilities: Accounts payable Accrued liabilities Total current liabilities Long-term liabilities Total liabilities Stockholders' equity: Common stock and additional Baid-in capital Retained earnings Total stockholders' equity Total liabilities and stockholders' equity $ $ 154 10 164 90 10 100 - 164 100 100 296 396 $ 560 100 282 382 $ 482 Venice InLine, Inc. Income Statement For the Year Ended December 31 (dollars in thousands) This Year $ 420 290 130 Sales (all on account) Cost of goods sold Gross margin Selling and administrative expenses : Selling expenses Administrative expenses Total selling and administrative expenses Net operating income Interest expense Net income before taxes Income taxes (30%) Net income 42 68 110 20 20 6 14 S Hook ances Required: 1-a. Based on the above unaudited financial statement of the current year calculate the following: Current ratio Acid-test ratio Ratio of net operating income to loan interest 1-b. Based on the statement made by the loan officer, would the company qualify for the loan? 2. Last year Russ purchased and installed new, more efficient equipment to replace an older plastic injection molding machine. Russ had originally planned to sell the old machine but found that it is still needed whenever the plastic injection molding process is a bottleneck. When Russ discussed his cash flow problems with his brother-in-law, he suggested to Russ that the old equipment be sold or at least reclassified as inventory on the balance sheet because it could be readily sold. At present, the equipment is carried in the Property and Equipment account and could be sold for its net book value of $45,000. The bank does not require audited financial a. Calculate the following if the old machine is considered as inventory. b. Based on the 2a answer, would the company qualify for the loan? c. Calculate the following if the old machine is sold off. d. Based on the 2c answer, would the company qualify for the loan? statements Complete this question by entering your answers in the tabs below. Reg 1A Req 18 Reg 2A Reg 28 Req 2c Reg 2D Based on the above unaudited financial statement of the current year calculate the following: Current ratio Acid-test ratio Ratio of net operating income to loan interest (Round your answers to 1 decimal place.) Show less Current ratio Acid-test ratio Ratio of net operating income to loan interest RA Req 1B > Complete this question by entering your answers in the tabs below. Req 1A Req 1B Req 2A Req 2B Req 2C Req 2D Based on the statement made by the loan officer, would the company qualify for the loan? Yes No Reg 1A Req 1B Req 2A Req 2B Reg 20 Reg 2D Last year Russ purchased and installed new, more efficient equipment to replace an older plastic Injection molding machine. Russ had originally planned to sell the old machine but found that it is still needed whenever the plastic injection molding process is a bottleneck. When Russ discussed his cash flow problems with his brother-in-law, he suggested to Russ that the old equipment be sold or at least reclassified as Inventory on the balance sheet because it could be readily sold. At present, the equipment is carried in the Property and Equipment account and could be sold for its net book value of $45,000. The bank does not require audited financial statements. Calculate the following if the old machine is considered as inventory. (Round your answers to 1 decimal place.) Show less Current ratio Acid-test ratio Complete this question by entering your answers in the tabs below. Reg 1A Reg 1 Req 2A Reg 28 Reg 2C Reg 2D Last year Russ purchased and installed new, more efficient equipment to replace an older plastic Injection molding machine. Russ had originally planned to sell the old machine but found that it is still needed whenever the plastic injection molding process is a bottleneck. When Russ discussed his cash flow problems with his brother-in-law, he suggested to Russ that the old equipment be sold or at least reclassified as inventory on the balance sheet because it could be readily sold. At present, the equipment is carried in the Property and Equipment account and could be sold for its net book value of $45,000. The bank does not require audited Financial statements. Based on the 20 answer, would the company qualify for the loan? Show less Yes No Ask Complete this question by entering your answers in the tabs Delow. rences Req1A Reg 1B Reg 2A Req 28 Req 2C Reg 20 Last year Russ purchased and installed new, more efficient equipment to replace an older plastic Injection molding machine. Russ had originally planned to sell the old machine but found that it is still needed whenever the plastic Injection molding process is a bottleneck. When Russ discussed his cash flow problems with his brother-in-law, he suggested to Russ that the old equipment be sold or at least reclassified as inventory on the balance sheet because it could be readily sold. At present, the equipment is carried in the Property and Equipment account and could be sold for its net book value of $45,000. The bank does not require audited financial statements. Calculate the following in the old machine is sold off. (Round your answers to 1 decimal place.) Show less Current ratio Acid-test ratio Prey 1 of 9 !!! Next > Complete this question by entering your answers in the tabs below. Reg 1A Reg 1B Reg 2A Reg 28 Req 2C Reg 2D Last year Russ purchased and installed new, more efficient equipment to replace an older plastic Injection molding machine. Russ had originally planned to sell the old machine but found that it is still needed whenever the plastic Injection molding process is a bottleneck. When Russ discussed his cash flow problems with his brother-in-law, he suggested to Russ that the old equipment be sold or at least reclassified as inventory on the balance sheet because it could be readily sold. At present, the equipment is carried in the Property and Equipment account and could be sold for its net book value of $45,000. The bank does not require audited financial statements. Based on the 2c answer, would the company qualify for the loan? Show less OYes ONO Reg 2C