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Question
The balance sheet for the Long Drive Golf Company on September 30, 2010 is presented below:Long Drive Golf Company Balance Sheet
September 30, 2010
| Cash | $528,000 | Accounts payable | $1,568,000 | |
| Accounts receivable | 1,216,000 | Notes payable | 752,000 | |
| Inventory | 2,400,000 | Total current liabilities | 2,320,000 | |
| Fixed assets | 5,632,000 | Long-term debt | 2,336,000 | |
| Common stock | 3,200,000 | |||
| Total assets | $9,776,000 | Retained earnings | 1,920,000 | |
| Total liabilities and stockholders' equity | $9,776,000 |
The treasurer of the firm wants to issue $1,200,000 in long-term bonds to be used as follows:
1. $240,000 to reduce accounts payable
2. $192,000 to retire notes payable
3. $128,000 to increase cash on hand
4. $640,000 to increase inventories
a. Assuming that the loan is obtained, construct a pro forma balance sheet for December 31, 2010, for Long Drive Golf Company that reflects the use of the funds provided.
b. Was the liquidity of Long Drive Golf Company improved by the loan?
Answer
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