**8. How much does the business need for its continuing operation?***Hint:* Net Fixed Assets is the purchase price of all fixed assets (Land, buildings, equipment, machinery, vehicles, leasehold improvements) less accumulated Depreciation.---**9. What debts will take longer than a year to pay?**---**10. Can this business be considered liquid?***Hint:* Current ratio = current assets / current liabilities By the rule of thumb, it should be 2 or greater. The current ratio is an indicator of a business's ability to repay debt when it is due. **Warrior Industries Financial Statements**### Income Statement for Year Ending 12/31/20XX**Sales Revenue:** $456,428- **Less Cost of Goods Sold:** $205,200**Gross Margin:** $251,228- **Less Operating Expenses:** - Marketing: $40,000 - Sales and administrative: $20,000 - Depreciation: $10,000**Total Operating Expenses:** $70,000**Operating Income:** $181,228- **Less Interest Expense:** $7,000**Income Before Taxes:** $174,228- **Income Tax Expense:** $40,000**Net Income:** $134,228---### Balance Sheet for 12/31/20XX#### Assets**Current Assets:**- Cash: $52,400- Accounts Receivable: $11,000- Inventory: $15,900**Total Current Assets:** $79,300**Fixed Assets:**- Property, Plant, and Equipment: $80,000- Accumulated Depreciation: ($20,000)**Net Fixed Assets:** $60,000**Total Assets:** $139,300---#### Liabilities and Owner’s Equity**Current Liabilities:**- Accounts Payable: $5,300- Note Payable to Bank: $2,700- Deposits from Customers: $6,000**Total Current Liabilities:** $14,000**Long-term Mortgage:** $40,000**Total Liabilities:** $54,000**Owner’s Equity:**- Retained Earnings: $85,300**Total Owners’ Equity:** $85,300**Total Liabilities and Equities:** $139,300

Answered: 8. How much does the business need for…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Question

**8. How much does the business need for its continuing operation?**

*Hint:* Net Fixed Assets is the purchase price of all fixed assets (Land, buildings, equipment, machinery, vehicles, leasehold improvements) less accumulated Depreciation.

---

**9. What debts will take longer than a year to pay?**

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**10. Can this business be considered liquid?**

*Hint:* Current ratio = current assets / current liabilities
By the rule of thumb, it should be 2 or greater. The current ratio is an indicator of a business's ability to repay debt when it is due.

**Warrior Industries Financial Statements**

### Income Statement for Year Ending 12/31/20XX

**Sales Revenue:** $456,428

- **Less Cost of Goods Sold:** $205,200

**Gross Margin:** $251,228

- **Less Operating Expenses:**
- Marketing: $40,000
- Sales and administrative: $20,000
- Depreciation: $10,000

**Total Operating Expenses:** $70,000

**Operating Income:** $181,228

- **Less Interest Expense:** $7,000

**Income Before Taxes:** $174,228

- **Income Tax Expense:** $40,000

**Net Income:** $134,228

---

### Balance Sheet for 12/31/20XX

#### Assets

**Current Assets:**
- Cash: $52,400
- Accounts Receivable: $11,000
- Inventory: $15,900

**Total Current Assets:** $79,300

**Fixed Assets:**
- Property, Plant, and Equipment: $80,000
- Accumulated Depreciation: ($20,000)

**Net Fixed Assets:** $60,000

**Total Assets:** $139,300

---

#### Liabilities and Owner’s Equity

**Current Liabilities:**
- Accounts Payable: $5,300
- Note Payable to Bank: $2,700
- Deposits from Customers: $6,000

**Total Current Liabilities:** $14,000

**Long-term Mortgage:** $40,000

**Total Liabilities:** $54,000

**Owner’s Equity:**
- Retained Earnings: $85,300

**Total Owners’ Equity:** $85,300

**Total Liabilities and Equities:** $139,300

Expert Solution

Step 1

Introductions:

1. Continuing operations include net sales revenue, all the related costs, and operating expenses in the day-to-day operations of a business, and do not include any discontinued operation or any extraordinary item. Income from continuing operations also means operating income.

2. Long-term debts shown under non-current liabilities are debts that take longer than a year to pay.

3. A business is considered liquid when they are not able to repay current debts when they become due or the current assets fall short of current liabilities.

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