Question
In: Accounting
Santana Rey has consulted with her local banker and is considering financing an expansion of her...
Santana Rey has consulted with her local banker and is considering financing an expansion of her business by obtaining a long-term bank loan. Selected account balances at March 31, 2018, for Business Solutions follow. Total assets $121,768 Total liabilities $860 Total equity $120,908 Required: 1. The bank has offered a long-term secured note to Business Solutions. The bank’s loan procedures require that a client’s debt-to-equity ratio not exceed 0.75. As of March 31, 2018, what is the maximum amount that Business Solutions could borrow from this bank? (Round your intermediate calculations to the nearest dollar amount.) 2. Assume Business Solutions borrows the maximum amount allowed from the bank. (a) What percentage of assets would be financed by debt? (Round your intermediate dollar values to the nearest whole number and final answer to 1 decimal place.) (b) What percentage of assets would be financed by equity? (Round your intermediate dollar values to the nearest whole number and final answer to 1 decimal place.)
Solutions
Expert Solution
- 1. The bank has offered a long-term secured note to Business Solutions. The bank’s loan procedures require that a client’s debt-to-equity ratio not exceed 0.75. As of March 31, 2018, what is the maximum amount that Business Solutions could borrow from this bank? (Round your intermediate calculations to the nearest dollar amount.)
The maximum debt the company can owe is 0.75. debt should not be greater than 0.75
So the Total equity = 120908,
Maximum amount of debt the company can owe is $120908*0.75 = $90681
Liabilities already owed = $860
Total amount the company can borrow is $90681-$860 = $89821
- Assume Business Solutions borrows the maximum amount allowed from the bank. (a) What percentage of assets would be financed by debt? (Round your intermediate dollar values to the nearest whole number and final answer to 1 decimal place.)
if a company has borrowed the amount of $89821, it means company is getting the cash, current asset of $89821/ then the total assets will be $89821(cash)+$121768(given) = $211589
Percentage of assets financed by liabilities:
$90681/$211589 = 42.86%
(b) What percentage of assets would be financed by equity?
Percentage of equity would be same and remains unchanged. Percentages must be equal to 100%, so the answer will be 100%-42.86% = 57.14%
ekkarill92 answered 2 years agoRelated Solutions
Santana Rey created Business Solutions on October 1, 2017. The company has been successful, and Santana plans to expand her business.
Santana Rey created Business Solutions on October 1, 2017. The company has been successful, and Santana plans to expand her business. She believes that an additional $86,000 is needed and is investigating three funding sources.
⦁ Santana’s sister Cicely is willing to invest $86,000 in the business as a common shareholder. Since Santana currently has about $129,000 invested in the business, Cicely’s investment will mean that Santana will maintain about 60% ownership and Cicely will have 40% ownership of Business...
Santana Rey, owner of Business Solutions, decides to prepare a statement of cash flows for her...
Santana Rey, owner of Business Solutions, decides to prepare a
statement of cash flows for her business using the following
financial data.
BUSINESS SOLUTIONS
Income Statement
For Three Months Ended March 31, 2020
Computer services revenue
$
25,107
Net sales
17,793
Total revenue
42,900
Cost of goods sold
$
14,152
Depreciation expense—Office equipment
330
Depreciation expense—Computer equipment
1,240
Wages expense
2,450
Insurance expense
525
Rent expense
2,275
Computer supplies expense
1,235
Advertising expense
520
Mileage expense
270
Repairs expense—Computer...
Santana Rey, owner of Business Solutions, decides to prepare a statement of cash flows for her...
Santana Rey, owner of Business Solutions, decides to prepare a
statement of cash flows for her business using the following
financial data.
BUSINESS SOLUTIONS
Income Statement
For Three Months Ended March 31, 2020
Computer services revenue
$
25,207
Net sales
18,593
Total revenue
43,800
Cost of goods sold
$
14,552
Depreciation expense—Office equipment
360
Depreciation expense—Computer equipment
1,220
Wages expense
2,650
Insurance expense
545
Rent expense
2,375
Computer supplies expense
1,275
Advertising expense
510
Mileage expense
310
Repairs expense—Computer...
Santana Rey, owner of Business Solutions, decides to prepare a statement of cash flows for her...
Santana Rey, owner of Business Solutions, decides to prepare a
statement of cash flows for her business using the following
financial data. BUSINESS SOLUTIONS Income Statement For Three
Months Ended March 31, 2018 Computer services revenue $ 24,507 Net
sales 18,193 Total revenue 42,700 Cost of goods sold $ 14,252
Depreciation expense—Office equipment 380 Depreciation
expense—Computer equipment 1,180 Wages expense 2,950 Insurance
expense 495 Rent expense 2,075 Computer supplies expense 1,285
Advertising expense 600 Mileage expense 250 Repairs
expense—Computer 910...
Santana Rey, owner of Business Solutions, decides to prepare a statement of cash flows for her...
Santana Rey, owner of Business Solutions, decides to prepare a
statement of cash flows for her business using the following
financial data. BUSINESS SOLUTIONS Income Statement For Three
Months Ended March 31, 2019 Computer services revenue $ 25,307 Net
sales 18,693 Total revenue 44,000 Cost of goods sold $ 14,052
Depreciation expense—Office equip. 400 Depreciation
expense—Computer equip. 1,250 Wages expense 3,250 Insurance expense
555 Rent expense 2,475 Computer supplies expense 1,305 Advertising
expense 600 Mileage expense 320 Repairs expense—Computer 960...
Santana Rey, owner of Business Solutions, decides to prepare a statement of cash flows for her...
Santana Rey, owner of Business Solutions, decides to prepare a
statement of cash flows for her business using the following
financial data.
BUSINESS SOLUTIONS Income Statement For Three Months Ended March
31, 2020 Computer services revenue $ 25,007 Net sales 17,893 Total
revenue 42,900 Cost of goods sold $ 14,652 Depreciation
expense—Office equipment 370 Depreciation expense—Computer
equipment 1,250 Wages expense 2,950 Insurance expense 475 Rent
expense 1,575 Computer supplies expense 1,285 Advertising expense
580 Mileage expense 260 Repairs expense—Computer 860...
Santana Rey, owner of Business Solutions, decides to prepare a statement of cash flows for her...
Santana Rey, owner of Business Solutions, decides to prepare a
statement of cash flows for her business using the following
financial data.
BUSINESS SOLUTIONS
Income Statement
For Three Months Ended March 31, 2020
Computer services revenue
$
24,307
Net sales
18,393
Total revenue
42,700
Cost of goods sold
$
14,652
Depreciation expense—Office equipment
400
Depreciation expense—Computer equipment
1,210
Wages expense
3,050
Insurance expense
525
Rent expense
2,375
Computer supplies expense
1,275
Advertising expense
510
Mileage expense
280
Repairs expense—Computer...
Santana Rey, owner of Business Solutions, decides to prepare a statement of cash flows for her...
Santana Rey, owner of Business Solutions, decides to prepare a
statement of cash flows for her business using the following
financial data. BUSINESS SOLUTIONS Income Statement For Three
Months Ended March 31, 2020 Computer services revenue $ 25,207 Net
sales 17,993 Total revenue 43,200 Cost of goods sold $ 14,852
Depreciation expense—Office equipment 310 Depreciation
expense—Computer equipment 1,250 Wages expense 2,850 Insurance
expense 525 Rent expense 1,975 Computer supplies expense 1,285
Advertising expense 540 Mileage expense 310 Repairs
expense—Computer 860...
Part A Santana Rey of Business Solutions is evaluating her inventory to determine whether it must...
Part A Santana Rey of Business Solutions is evaluating her
inventory to determine whether it must be adjusted based on lower
of cost or market rules. Business Solutions has three different
types of software in its inventory, and the following information
is available for each. Per Unit Inventory Items Units Cost Market
Office productivity 8 $ 76 $ 78 Desktop publishing 7 102 105
Accounting 8 98 95 Required: Compute the lower of cost or market
for ending inventory assuming...
Santana Rey, owner of Business Solutions, decides to prepare a statement of cash flows for her...
Santana Rey, owner of Business
Solutions, decides to prepare a statement of cash flows for her
business using the following financial data.
BUSINESS SOLUTIONS
Income Statement
For Three Months Ended March 31, 2018
Computer services revenue
$
24,407
Net sales
18,193
Total revenue
42,600
Cost of goods sold
$
14,452
Depreciation expense—Office equipment
400
Depreciation expense—Computer equipment
1,240
Wages expense
2,550
Insurance expense
465
Rent expense
1,775
Computer supplies expense
1,265
Advertising expense
540
Mileage expense
230
Repairs expense—Computer...
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