Question

Below are the 2018 and 2019 year-end balance sheets for Walker Inc.:

Assets	2019	2018
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	6,800,000	6,600,000
Total assets	$9,864,000	$8,870,000
Liabilities and equity
Accounts payable	$1,400,000	$1,090,000
Notes payable	1,600,000	1,800,000
Total current liabilities	$3,000,000	$2,890,000
Long-term debt	3,200,000	2,400,000
Common stock	3,000,000	3,000,000
Retained earnings	664,000	580,000
Total common equity	$      3,664,000	$ 3,580,000
Total liabilities and equity	$9,864,000	$8,870,000

Walker has never paid a dividend on its common share, 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.	Walker increased its short-term bank debt in 2019.
	b.	Walker issued new common shares in 2019.
	c.	Walker issued long-term debt in 2019.
	d.	Walker repurchased some common shares in 2019.

Answer 1

The correct answer is option c since during the year of 2019, Walker issued long term debt since the same has been increased from 2018 to 2019 as shown below:

= $ 3,200,000 - $ 2,400,000

= $ 800,000

Since there is no short term bank debt as mentioned in the question , so statement a is incorrect.

There is no increase or decrease in common stock from 2018 to 2019, which implies that the common shares were neither issued or repurchased. Hence statement b and statement d are incorrect.