Mgsc312 Essay

1642 WordsJun 8, 20137 Pages
Applying your understanding of the relationships among the financial statements: Question 1 25 marks The assets and liabilities of Toronto Service Inc. as of December 31, 2008, and revenue and expenses for the year ended December 31, 2008 are listed below: Accounts Payable|$21,000||Property tax expense|$5,000| ||||| Accounts Receivable|25,000||Rent expense|3,000| ||||| Advertising expense|10,000||Salary expense|85,000| ||||| Building|140,000||Salary payable|12,000| ||||| Cash|10,000||Service Revenue|200,000| ||||| Furniture|20,000||Share Capital|75,000| ||||| Interest expense|4,000||Supplies|3,000| ||||| Land|98,000||Note Payable|95,000| ||||| Beginning Retained Earnings were $50,000 and dividends totalled $50,000 for…show more content…
A business can lose money for years but if they have a high cash balance to begin with. That way, even with the company losing money there will be sufficient funds within the company. Also, if investors keep buying the company's equity with cash, the company's cash balance may be higher. Another possibility is that they have high liabilites with amounts payable to third parties which they have not paid. This includes accounts payable, notes payable, etc. As long as the dues are not paid, the cash balance will not decrease even if the company is in a loss. d. Give two reasons why a business can be profitable for many years and still have a cash shortage? If the company has a business where large amounts of cash investments are required in order to earn the revenue, they will have a shortage of cash even if they are profitable. Also, if they keep expanding as they get the money from the profit, there will always be a cash shortage since they do not keep the excess cash within the company. Also, if the company pays high amounts of dividends along with the high profit, the excess cash that comes with the profits will be going out as dividends and returning the company to its previous cash position. e. Suppose your business has $80,000 worth of liabilities that must be paid within the next three months. Your liquid (can be turned into cash quickly) assets total only $60,000, your sales and collections from

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