Finance : Chapter 3 Assigned Problems Solved! 1. Transactions.
NLF Shares are issued for cash. Goods for inventory are sold for cash. Goods from inventory are sold on account. A fixed asset is sold for cash for less than book value. A fixed asset is sold for cash for more than book value. Corporate income tax is paid. Payment is made to trade creditors. Cash is obtained through a short-term bank loan. Cash is obtained through a long-term bank loan. A cash dividend is declared and paid. Accounts receivable are collected. Merchandise is purchased on account. Cash advances are made to employees. Minority interest in a firm is acquired for cash. Equipment is acquired for cash. + + + + + 0 0 0 + – 0 0 0 – – WCR 0 – + 0 0 + + 0 0 0 – 0 + 0 0 NSF – – 0 – + + 0 – + – 0 + + + NET PROFIT 0 + + – + 0 0 0 0 0 0 0 0 0 0

3. Reconstructing a balance sheet. Sales 20 days of sales 360 days of sales Accounts receivable 40 days of sales Inventory Inventory

= $400,000 = ($400,000/20) × 360 = $7,200,000

= ($7,200,000/360) × 40 = $800,000

= Sales/6 = $7,200,000/6 = $1,200,000

Working capital requirement (WCR): WCR = .20 × Sales = .20 × $7,200,000 = $1,440,000 Accounts payable Since WCR Accounts payable = (Accounts receivable + Inventory) – Accounts payable, = (Accounts receivable + Inventory) – WCR = ($800,000 + $1,200,000) – $1,440,000 = $560,000

Net fixed assets Net fixed assets Net fixed assets

= Total assets – Current assets = Total assets – Inventory – Accounts receivable – Cash = $5,000,000 – $1,200,000 – $800,000 – $400,000 = $2,600,000

Short-term debt Liabilities

= .60 × total assets = .60 × $5,000,000 = $3,000,000 = Liabilities – Accounts payable = $3,000,000 – $560,000 = $2,440,000 = .10 × $2,440,000 = $244,000 = Financial debt – Short-term debt = $2,440,000 – $244,000 = $2,196,000 = Total assets – Liabilities = $5,000,000 – $3,000,000 = $2,000,000