Consider the balance sheet of Wikileaks Industries as shown below. Because Wikileaks has $900,000 of retained
earnings, do you think that the company would be able to pay cash to buy an asset with a cost of $300,000? Why or why not? Give logical arguments to support your answer.
Cash. $ 50,000Accounts payable. $ 100,000
Inventory. 200,000Accruals 100,000
Accounts receivable 250,000Total CL. $ 200,000
Total CA $ 500,000Debt 100,000
Net fixed assets $ 900,000Common stock. 200,000
_________Retained earnings. 900,000
Total assets$1,400,000Total L & E $1,400,000
Balance sheet is not given
But if the company has 300,000 cash or if company has account
receivable or inventory which is normally sell out within 30 days and amount is
recovered 30 - 60 days so company may purchase an asset with a cost of 300,000
on account and pay later (after 30 to 60 days).
Its not depend on retained earnings. Even though if company has
retained earnings, so it is possible that it is being used in non currents
assets already so just seeing retained earning, we cannot conclude whether we
will be able to purchase or not.
So, company should check how much enough cash company have and
after paying all liabilities, how much remaining company will have and that
will be 300,000 purchase an asset or not