Answer the requirement # 2. Problem 9Skate he had designed for doing aerial tricks. Up to this point, Rodie has financedhe company from his own savings and from retained profits. However, Rodie nowthedenny Rod Inc. was founded by Rodie Yad to produce a specialized rollerlaces a cash crisis. In the year just ended, an acute shortage of roller bearings haddeveloped just as the company was beginning production for the Christmasseason. Rodie had been assured by the suppliers that the roller bearings would bedelivered in time to make Christmas shipments, but the suppliers had bechunable to fully deliver on this promise. As a consequence, Jenny Rod had largestocks of unfinished skates at the end of the vear and had been unable to fill all ofthe orders that had come in from retailer for the Christmas season. Consequently,sales were below expectations for the year, and Rodie does not have enough cashto pay his creditors.Well before the accounts payable were to become due, Rodie visited a localbank and inquired about obtaining a loan. The loan officer at the bank assuredRodie that there should not be any problem getting a loan to pay off his accountspayable – providing that on his most recent financial statements the current ratiowas above 2.0, the acid-test ratio was above 1.0, and net operating income was atleast four times the interest on the proposed loan. Rodie promised to return laterwith a copy of his financial statements.Rodie would like to apply for a P80,000 six-month loan bearing an interestrate of 10% per year.The unaudited financial reports of the company appear below:JENNY ROD, INC.Comparative Balance SheetAs of December 31, 2018 and 2019(in thousands)Assets20192018CashP70P1505040Accounts receivable160100Inventory1012Prepaid expenses290302Total current assetsPlant and equipment270180P560P482Total assetsLiabilities and EquityCurrent liabilities:P154P90Accounts payableAccrued payables1010164100Total current liabilitiesLong-term liabilities164100Total liabilitiesStockholders' Equity100100Ordinary shares and additional paid-in capitalRetained earningsTotal stockholders' equityTotal liabilities and stockholders' equity296282396382P560P482 JENNY ROD, INC.Income StatementFor the period ended December 31, 2019(in thousands)Sales (all on account)Cost of goods soldGross marginOperating expenses:Selling expensesAdministrative expensesP4202901304268Total operating expenses11020Net operating incomeInterest expenseNet income before taxes20Less income taxes (30%)6.Net incomeP14Required:1. Based on the above unaudited financial statements and the statementmade by the loan officer, would the company qualify for the loan? Defendyour answer. Show necessary computations in good form.2. Last year Rodie purchased and installed new, more efficient equipment toreplace an older plastic injection molding machine. Rodie had originallyplanned to sell the old machine but found that it is still needed wheneverthe plastic injection molding process is a bottleneck. When Rodie discussedhis cash flow problems with his brother-in-law, he suggested to Rodie thatthe old machine be sold or at least reclassified as inventory on the balancesheet since it could be readily sold. At present, the machine is carried inthe Property and Equipment account and could be sold for its net bookvalue of P45,000. The bank does not require audited financial statements.What advice would you give to Rome concerning the machine? Shownecessary computations in good form.Answer (1)

Financial statements are a compilation of high-level reports that summarize an company's or firm's…

JENNY ROD, INC. Income Statement For the period ended December 31, 2019 (in thousands) Sales (all on account) Cost of goods sold Gross margin Operating expenses: Selling expenses Administrative expenses P420 290 130 42 68 Total operating expenses 110 20 Net operating income Interest expense Net income before taxes 20 6. Less income taxes (30%) P14 Net income Required: 1. Based on the above unaudited financial statements and the statement made by the loan officer, would the company qualify for the loan? Defend your answer. Show necessary computations in good form. 2. Last year Rodie purchased and installed new, more efficient equipment to replace an older plastic injection molding machine. Rodie 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 Rodie discussed his cash flow problems with his brother-in-law, he suggested to Rodie that the old machine be sold or at least reclassified as inventory on the balance sheet since it could be readily sold. At present, the machine is carried in the Property and Equipment account and could be sold for its net book value of P45,000. The bank does not require audited financial statements. What advice would you give to Rome concerning the machine? Show necessary computations in good form. Answer (1)

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q