Motion Designs Inc. Balance Sheet December 31, 20Y8 Assets Current assets: $ 250,000 Cash. Marketable securities. 3,000.000 $ 800,000 Accounts rewelvable Allowance for doubttul accounts (50,000) Accounts recelvable, net. 750,000 2,980.000 20,000 Inventory. Prepaid expenses Total current assets $ 7,000,000 Property, plant, and equipment: Land.. Buldings... Acaumulated depreciation-bulkdings Buldings, book value Equipment Accumulated depreciation equipment. Equipment, book value.. Total property, plant, and equipment.... $1,500,000 $5,050,000 (1,140,000) 3,910,000 $3,320,000 (730,000) 2,590.000 8,000.000 $15,000,000 Total assets. Llabilitles Current llabilities: $1,590,000 400,000 Accounts payable. Notes payable (Valley National Bank).. Salarles payable.. 10,000 $2,000,000 Total current Ilabilities.. Long-term llabilitles: Notes payable (Valley National Bank).. 3,600,000 $ 5,600,000 Total llabilitles. Stockholders Equity Paid-in capital: Common stock, $25 par (200,000 shares $4.500,000 authorized, 180,000 shares Issued). Excess of Issue price over par Total pald-in capital. Retained earnings. Total stockholders'equity 270,000 $4,770,000 4630.000 9,400,000 $15,000,000 Total llabilities and stockholders equity. .. The board of directors is scheduled to meet January 10, 20Y9, to discuss the results of operations for 20Y8 and to consider the declaration of dividends for the fourth quarter of 20Y8. The chairman of the board, Matt Cengage, has asked for your advice on the dedaration of dividends. Write a brief memo to the chairman of the board, outlining the factors that the board should consider in deciding whether to declare a cash dividend.

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Chapter11: The Statement Of Cash Flows
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Motion Designs Inc. has paid quarterly cash dividends since 20Y7. These dividends have steadily increased from $0.05 per share to the latest dividend declaration of $0.50 per share. The board of directors would like to continue this trend and is hesitant to suspend or decrease the amount of quarterly dividends. Unfortunately, sales dropped sharply in the fourth quarter of 20Y8 due to worsening economic conditions and increased competition. As a result, the board is uncertain as to whether it should declare a dividend for the last quarter of 20Y8.
On October 1, 20Y8, Motion Designs Inc. borrowed $4,000,000 from Valley National Bank to use in modernizing its retail stores and to expand its product line in response to changes in its industry. The terms of the 10-year, 6% loan require Motion Designs to do the following:
• Pay monthly interest on the last day of the month
• Pay $400,000 of the principal each October 1, beginning in 20Y9
• Maintain a current ratio (current assets ÷ current liabilities) of 2
• Maintain a minimum balance (a compensating balance) of $100,000 in its Valley National Bank account
On December 31, 20Y8, $1,000,000 of the $4,000,000 loan had been disbursed in modernization of the retail stores and in expansion of the product line. Motion Designs Inc.’s balance sheet as of December 31, 20Y8, follows:

Motion Designs Inc.
Balance Sheet
December 31, 20Y8
Assets
Current assets:
$ 250,000
Cash.
Marketable securities.
3,000.000
$ 800,000
Accounts rewelvable
Allowance for doubttul accounts
(50,000)
Accounts recelvable, net.
750,000
2,980.000
20,000
Inventory.
Prepaid expenses
Total current assets
$ 7,000,000
Property, plant, and equipment:
Land..
Buldings...
Acaumulated depreciation-bulkdings
Buldings, book value
Equipment
Accumulated depreciation equipment.
Equipment, book value..
Total property, plant, and equipment....
$1,500,000
$5,050,000
(1,140,000)
3,910,000
$3,320,000
(730,000)
2,590.000
8,000.000
$15,000,000
Total assets.
Llabilitles
Current llabilities:
$1,590,000
400,000
Accounts payable.
Notes payable (Valley National Bank)..
Salarles payable..
10,000
$2,000,000
Total current Ilabilities..
Long-term llabilitles:
Notes payable (Valley National Bank)..
3,600,000
$ 5,600,000
Total llabilitles.
Stockholders Equity
Paid-in capital:
Common stock, $25 par (200,000 shares
$4.500,000
authorized, 180,000 shares Issued).
Excess of Issue price over par
Total pald-in capital.
Retained earnings.
Total stockholders'equity
270,000
$4,770,000
4630.000
9,400,000
$15,000,000
Total llabilities and stockholders equity. ..
The board of directors is scheduled to meet January 10, 20Y9, to discuss the results
of operations for 20Y8 and to consider the declaration of dividends for the fourth quarter
of 20Y8. The chairman of the board, Matt Cengage, has asked for your advice on the
dedaration of dividends.
Write a brief memo to the chairman of the board, outlining the factors that the
board should consider in deciding whether to declare a cash dividend.
Transcribed Image Text:Motion Designs Inc. Balance Sheet December 31, 20Y8 Assets Current assets: $ 250,000 Cash. Marketable securities. 3,000.000 $ 800,000 Accounts rewelvable Allowance for doubttul accounts (50,000) Accounts recelvable, net. 750,000 2,980.000 20,000 Inventory. Prepaid expenses Total current assets $ 7,000,000 Property, plant, and equipment: Land.. Buldings... Acaumulated depreciation-bulkdings Buldings, book value Equipment Accumulated depreciation equipment. Equipment, book value.. Total property, plant, and equipment.... $1,500,000 $5,050,000 (1,140,000) 3,910,000 $3,320,000 (730,000) 2,590.000 8,000.000 $15,000,000 Total assets. Llabilitles Current llabilities: $1,590,000 400,000 Accounts payable. Notes payable (Valley National Bank).. Salarles payable.. 10,000 $2,000,000 Total current Ilabilities.. Long-term llabilitles: Notes payable (Valley National Bank).. 3,600,000 $ 5,600,000 Total llabilitles. Stockholders Equity Paid-in capital: Common stock, $25 par (200,000 shares $4.500,000 authorized, 180,000 shares Issued). Excess of Issue price over par Total pald-in capital. Retained earnings. Total stockholders'equity 270,000 $4,770,000 4630.000 9,400,000 $15,000,000 Total llabilities and stockholders equity. .. The board of directors is scheduled to meet January 10, 20Y9, to discuss the results of operations for 20Y8 and to consider the declaration of dividends for the fourth quarter of 20Y8. The chairman of the board, Matt Cengage, has asked for your advice on the dedaration of dividends. Write a brief memo to the chairman of the board, outlining the factors that the board should consider in deciding whether to declare a cash dividend.
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