Question

In: Finance

Below are the 2018 and 2019 year-end balance sheets for Tran Enterprises: Assets: 2018 2017 Cash...

Below are the 2018 and 2019 year-end balance sheets for Tran Enterprises:

Assets:	2018	2017
Cash	$ 200,000	$ 170,000
Accounts receivable	864,000	700,000
Inventories	2,000,000	1,400,000
Total current assets	$3,064,000	$2,270,000
Net fixed assets	6,000,000	5,600,000
Total assets	$9,064,000	$7,870,000

Liabilities and equity:

Accounts payable	$1,400,000	$1,090,000
Notes payable to bank	1,600,000	1,800,000
Total current liabilities	$3,000,000	$2,890,000
Long-term debt	2,400,000	2,400,000
Common stock	3,000,000	2,000,000
Retained earnings	664,000	580,000
Total common equity	$3,664,000	$2,580,000
Total liabilities and equity	$9,064,000	$7,870,000

The firm has never paid a dividend on its common stock, and it issued $2,400,000 of 10-year, non-callable, long-term debt in 2018. As of the end of 2019, none of the principal on this debt had been repaid. Assume that the company's sales in 2018 and 2019 were the same. Which of the following statements must be CORRECT?

a. The firm issued long-term debt in 2019

b. The firm had negative net income in 2019.

c. The firm increased its short-term bank debt in 2019.

d. The firm repurchased some common stock in 2019.

e. The firm issued new common stock in 2019.

Expert Solution

Answer:

a)Since,the long term debt's balance in 2019 and 2018 are same,hence the firm has neither issued or redeemed the long term debt in 2019.Accordingly,the given statement is Incorrect.

b)There is increase in retained earning's balance at the end of 2019,hence there must be positive net income in 2019.Accordingly the given statement is Incorrect.

c)There is no change in balance of short term bank debt(Notes Payable) since 2018,accordingly the given statement is Incorrect.

d)There is increased in common stock's balance at the end of 2019,hence there can't be repurchased of common stock in 2019.Thus,given statement is Incorrect.

e)There is increased in common stock's balance at the end of 2019,thus there must be issue of common stock in 2019.Accordingly,the given statement is correct.

Thus correct answer is 'Option e'

jeff jeffy answered 2 years ago

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