A new client, an oil and gas explorer in Western Canada, is currently negotiating a loan worth $3 million to avoid defaulting on its long-term debt that is due in three months. Its latest quarterly earnings report indicate that the entity has a working capital deficiency of $500,000, while its cash balance fell to $250,000, down from $500,000 a year earlier. There is a 0.5:1 current ratio. With little expectation of improved sales, the entity plans to cut back on production to preserve cash. It has also been paying suppliers late consistently, and some suppliers have begun demanding cash on delivery from the client. As a result, the share price has plunged and the entity has lost more than half of its market value in the last week. Which of the following conditions in this case may cast doubt on the client's ability to continue as a going concern? A. Declining ratios B. Long-term loans reaching maturity without alternative financing in place OC. Prolonged losses OD. An inability to pay debts when they fall due □ E. Supplier reluctance to provide goods on credit O F. The loss of a major market, key customer, franchise, or licence OG. Overreliance on a few customers or suppliers OH. Shortage of a key input or raw material O I. Rapid growth with insufficient planning O J. Falling behind competitors
A new client, an oil and gas explorer in Western Canada, is currently negotiating a loan worth $3 million to avoid defaulting on its long-term debt that is due in three months. Its latest quarterly earnings report indicate that the entity has a working capital deficiency of $500,000, while its cash balance fell to $250,000, down from $500,000 a year earlier. There is a 0.5:1 current ratio. With little expectation of improved sales, the entity plans to cut back on production to preserve cash. It has also been paying suppliers late consistently, and some suppliers have begun demanding cash on delivery from the client. As a result, the share price has plunged and the entity has lost more than half of its market value in the last week. Which of the following conditions in this case may cast doubt on the client's ability to continue as a going concern? A. Declining ratios B. Long-term loans reaching maturity without alternative financing in place OC. Prolonged losses OD. An inability to pay debts when they fall due □ E. Supplier reluctance to provide goods on credit O F. The loss of a major market, key customer, franchise, or licence OG. Overreliance on a few customers or suppliers OH. Shortage of a key input or raw material O I. Rapid growth with insufficient planning O J. Falling behind competitors
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:A new client, an oil and gas explorer in Western Canada, is currently negotiating a loan worth $3 million to avoid defaulting on its
long-term debt that is due in three months. Its latest quarterly earnings report indicate that the entity has a working capital
deficiency of $500,000, while its cash balance fell to $250,000, down from $500,000 a year earlier. There is a 0.5:1 current ratio.
With little expectation of improved sales, the entity plans to cut back on production to preserve cash. It has also been paying
suppliers late consistently, and some suppliers have begun demanding cash on delivery from the client. As a result, the share price
has plunged and the entity has lost more than half of its market value in the last week.
Which of the following conditions in this case may cast doubt on the client's ability to continue as a going concern?
A. Declining ratios
B. Long-term loans reaching maturity without alternative financing in place
OC. Prolonged losses
OD. An inability to pay debts when they fall due
□ E. Supplier reluctance to provide goods on credit
O F. The loss of a major market, key customer, franchise, or licence
OG. Overreliance on a few customers or suppliers
OH. Shortage of a key input or raw material
O I. Rapid growth with insufficient planning
O J. Falling behind competitors
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