Durafabric was a very successful company. Banner was a new customer of Durafabric, who wants to apply the credit application. Banner was applying for a $25,000 credit line; that is, the ability to purchase up to $25,000 of material and have 30 days to pay the bill. The forms use to evaluate an applicant's ability to pay bills. Balance sheet of Banner 　 1997 1996 1995 Current Assets 　　　 Cash & equivalents 75 $1,498 $2,253 Accounts receivable 22,015 25,655 23,282 Inventory 31,767 34,606 31,730 Prepaids 7,344 7,358 8,341 Deferred income taxes 　 7,371 4,815 Total current assets 61,201 76,488 70,421 　　　　 Property, plant & equipment 　　　 Land and buildins 7,143 7,002 6,418 Machinery & equipment 8,532 9,206 8,134 Leasebold improvements 2,424 1,810 1,688 　 18,099 18,018 16,240 Less accumulated depreciation -4,846 -4,048 -3,080 　 13,253 13,970 13,160 Other assets 5,807 3,992 2,263 Total assets 80,261 94,450 85,844 　　　　 Liabilities & Stockholders' equity 　　　 Current Liabilities 　　　　　　　 Notes payable to banks 15,608 13,000 8,147 Accounts payable 9,610 7,735 3,220 Accrued expenses 8,502 8,220 7,654 Accrued licensing fees 2,994 2,312 2,819 Accrued advertising 2,318 2,768 2,885 Current portion of long term debt 470 695 656 Total current liabilities 39,502 34,730 25,381 　 �� 　　 Long-term debt, less current portion 2,320 2,926 4,914 Total debt 41,822 37,656 30,295 Stockholders' equity 　　　 Common stock 140 139 134 Additional paid-in capital 46,108 45,995 45,694 Retained earning (deficit) -7,809 10,660 9,721 Total stockholders' equity 38,439 56,794 55,549 Total debt and equity 80,261 94,450 85,844 Income statement of Banner 　 1997 1996 1995 Sales $175,115 $202,981 $181,706 cost of sales 124,100 139,326 124,145 Gross Profit 51,015 63,655 57,561 　　　　 Royalty income 1,865 1,725 1,561 Selling, general & administrative expense 64,991 60,843 55,501 Restructuring costs 　 370 　　　　　 (Loss) income from operation -12,111 4,167 3,621 Other income 52 223 152 Interest expense -3,636 -2,824 -2,630 　　　　 (Loss) income before income taxes -15,695 1,566 1,143 Income taxes 2,772 628 533 Net (loss) income -18,467 938 610 　　　　 Basic and diluted (loss) earnings per share ($0.67) $0.04 $0.03 Cash flow of Banner 　 1997 1996 1995 Cash flow from operating activities 　　　 Net income (loss) -18,467 938 610 Adjustments to net (loss) income: 　　　 Depreciation and amortization 2,677 1,740 1,385 Provision for bad debts 324 1,100 519 Deferred income taxes 7,371 -2,556 3,429 Change in operating assets and liabilities 　　　 Accounts receivable 3,640 -2,373 3,479 Inventories 2,839 -2,876 7,872 Prepaid expenses and other assets 14 983 -1,833 Accounts payable and accrued expenses 2,389 4,457 -4,695 Net cash (used) provided by operating activities 787 1,413 10,766 　　　　 Cash flows from investing activities 　　　 Purchase of property, plant & equipment -2,286 -3,410 -1,074 Other, net -1,815 -1,729 -345 Net cash used by investing activities -4,101 -5,139 -1,419 　　　　 Cash flows from financing activities 　　　 Repayment of long term borrowing -1,426 -1,277 -9,889 Borrowing on credit arrangements 3,204 4,182 　 Sale of common stock 114 67 55 Net cash provided (used) by financing activities 1,892 2,972 -9,834 　　　　 Net decrease in cash -1,422 -754 -487 　　　　 Cash & cash equivalents-beginning of year 1,498 2,253 2,740 Cshe & cash equivalents-end of year 75 1,498 2,253 Questions: 1. Calculate the cash flow ratios. Discuss your conclusions gained from the picture presented with the cash flow ratios. 2. Are there any qualitative factors about Banner that would encourage or discourage you from granting a line of credit? These would be in contrast to the quantitative factors in the various ratios. 3. Would you grant Banner Corporation the credit line? Justify your decision.

Durafabric was a very successful company. Banner was a new customer of Durafabric, who wants to apply the credit application. Banner was applying for a $25,000 credit line; that is, the ability to purchase up to $25,000 of material and have 30 days to pay the bill. The forms use to evaluate an applicant's ability to pay bills. Balance sheet of Banner 　 1997 1996 1995 Current Assets 　　　 Cash & equivalents 75 $1,498 $2,253 Accounts receivable 22,015 25,655 23,282 Inventory 31,767 34,606 31,730 Prepaids 7,344 7,358 8,341 Deferred income taxes 　 7,371 4,815 Total current assets 61,201 76,488 70,421 　　　　 Property, plant & equipment 　　　 Land and buildins 7,143 7,002 6,418 Machinery & equipment 8,532 9,206 8,134 Leasebold improvements 2,424 1,810 1,688 　 18,099 18,018 16,240 Less accumulated depreciation -4,846 -4,048 -3,080 　 13,253 13,970 13,160 Other assets 5,807 3,992 2,263 Total assets 80,261 94,450 85,844 　　　　 Liabilities & Stockholders' equity 　　　 Current Liabilities 　　　　　　　 Notes payable to banks 15,608 13,000 8,147 Accounts payable 9,610 7,735 3,220 Accrued expenses 8,502 8,220 7,654 Accrued licensing fees 2,994 2,312 2,819 Accrued advertising 2,318 2,768 2,885 Current portion of long term debt 470 695 656 Total current liabilities 39,502 34,730 25,381 　 �� 　　 Long-term debt, less current portion 2,320 2,926 4,914 Total debt 41,822 37,656 30,295 Stockholders' equity 　　　 Common stock 140 139 134 Additional paid-in capital 46,108 45,995 45,694 Retained earning (deficit) -7,809 10,660 9,721 Total stockholders' equity 38,439 56,794 55,549 Total debt and equity 80,261 94,450 85,844 Income statement of Banner 　 1997 1996 1995 Sales $175,115 $202,981 $181,706 cost of sales 124,100 139,326 124,145 Gross Profit 51,015 63,655 57,561 　　　　 Royalty income 1,865 1,725 1,561 Selling, general & administrative expense 64,991 60,843 55,501 Restructuring costs 　 370 　　　　　 (Loss) income from operation -12,111 4,167 3,621 Other income 52 223 152 Interest expense -3,636 -2,824 -2,630 　　　　 (Loss) income before income taxes -15,695 1,566 1,143 Income taxes 2,772 628 533 Net (loss) income -18,467 938 610 　　　　 Basic and diluted (loss) earnings per share ($0.67) $0.04 $0.03 Cash flow of Banner 　 1997 1996 1995 Cash flow from operating activities 　　　 Net income (loss) -18,467 938 610 Adjustments to net (loss) income: 　　　 Depreciation and amortization 2,677 1,740 1,385 Provision for bad debts 324 1,100 519 Deferred income taxes 7,371 -2,556 3,429 Change in operating assets and liabilities 　　　 Accounts receivable 3,640 -2,373 3,479 Inventories 2,839 -2,876 7,872 Prepaid expenses and other assets 14 983 -1,833 Accounts payable and accrued expenses 2,389 4,457 -4,695 Net cash (used) provided by operating activities 787 1,413 10,766 　　　　 Cash flows from investing activities 　　　 Purchase of property, plant & equipment -2,286 -3,410 -1,074 Other, net -1,815 -1,729 -345 Net cash used by investing activities -4,101 -5,139 -1,419 　　　　 Cash flows from financing activities 　　　 Repayment of long term borrowing -1,426 -1,277 -9,889 Borrowing on credit arrangements 3,204 4,182 　 Sale of common stock 114 67 55 Net cash provided (used) by financing activities 1,892 2,972 -9,834 　　　　 Net decrease in cash -1,422 -754 -487 　　　　 Cash & cash equivalents-beginning of year 1,498 2,253 2,740 Cshe & cash equivalents-end of year 75 1,498 2,253 Questions: 1. Calculate the cash flow ratios. Discuss your conclusions gained from the picture presented with the cash flow ratios. 2. Are there any qualitative factors about Banner that would encourage or discourage you from granting a line of credit? These would be in contrast to the quantitative factors in the various ratios. 3. Would you grant Banner Corporation the credit line? Justify your decision.

Principles of Accounting Volume 1

19th Edition

ISBN:9781947172685

Author:OpenStax

Publisher:OpenStax

Chapter12: Current Liabilities

Section: Chapter Questions

Problem 11EB: Whole Leaves wants to upgrade their equipment, and on January 24 the company takes out a loan from...

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Balance sheet of Banner

	1997	1996	1995
Current Assets
Cash & equivalents	75	$1,498	$2,253
Accounts receivable	22,015	25,655	23,282
Inventory	31,767	34,606	31,730
Prepaids	7,344	7,358	8,341
Deferred income taxes		7,371	4,815
Total current assets	61,201	76,488	70,421

Property, plant & equipment
Land and buildins	7,143	7,002	6,418
Machinery & equipment	8,532	9,206	8,134
Leasebold improvements	2,424	1,810	1,688
	18,099	18,018	16,240
Less accumulated depreciation	-4,846	-4,048	-3,080
	13,253	13,970	13,160
Other assets	5,807	3,992	2,263
Total assets	80,261	94,450	85,844

Liabilities & Stockholders' equity
Current Liabilities

Notes payable to banks	15,608	13,000	8,147
Accounts payable	9,610	7,735	3,220
Accrued expenses	8,502	8,220	7,654
Accrued licensing fees	2,994	2,312	2,819
Accrued advertising	2,318	2,768	2,885
Current portion of long term debt	470	695	656
Total current liabilities	39,502	34,730	25,381
	��
Long-term debt, less current portion	2,320	2,926	4,914
Total debt	41,822	37,656	30,295
Stockholders' equity
Common stock	140	139	134
Additional paid-in capital	46,108	45,995	45,694
Retained earning (deficit)	-7,809	10,660	9,721
Total stockholders' equity	38,439	56,794	55,549
Total debt and equity	80,261	94,450	85,844

Income statement of Banner

	1997	1996	1995
Sales	$175,115	$202,981	$181,706
cost of sales	124,100	139,326	124,145
Gross Profit	51,015	63,655	57,561

Royalty income	1,865	1,725	1,561
Selling, general & administrative expense	64,991	60,843	55,501
Restructuring costs		370

(Loss) income from operation	-12,111	4,167	3,621
Other income	52	223	152
Interest expense	-3,636	-2,824	-2,630

(Loss) income before income taxes	-15,695	1,566	1,143
Income taxes	2,772	628	533
Net (loss) income	-18,467	938	610

Basic and diluted (loss) earnings per share	($0.67)	$0.04	$0.03

Cash flow of Banner

	1997	1996	1995
Cash flow from operating activities
Net income (loss)	-18,467	938	610
Adjustments to net (loss) income:
Depreciation and amortization	2,677	1,740	1,385
Provision for bad debts	324	1,100	519
Deferred income taxes	7,371	-2,556	3,429
Change in operating assets and liabilities
Accounts receivable	3,640	-2,373	3,479
Inventories	2,839	-2,876	7,872
Prepaid expenses and other assets	14	983	-1,833
Accounts payable and accrued expenses	2,389	4,457	-4,695
Net cash (used) provided by operating activities	787	1,413	10,766

Cash flows from investing activities
Purchase of property, plant & equipment	-2,286	-3,410	-1,074
Other, net	-1,815	-1,729	-345
Net cash used by investing activities	-4,101	-5,139	-1,419

Cash flows from financing activities
Repayment of long term borrowing	-1,426	-1,277	-9,889
Borrowing on credit arrangements	3,204	4,182
Sale of common stock	114	67	55
Net cash provided (used) by financing activities	1,892	2,972	-9,834

Net decrease in cash	-1,422	-754	-487

Cash & cash equivalents-beginning of year	1,498	2,253	2,740
Cshe & cash equivalents-end of year	75	1,498	2,253

Questions:

1. Calculate the cash flow ratios. Discuss your conclusions gained from the picture presented with the cash flow ratios.

2. Are there any qualitative factors about Banner that would encourage or discourage you from granting a line of credit? These would be in contrast to the quantitative factors in the various ratios.

3. Would you grant Banner Corporation the credit line? Justify your decision.

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