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Question

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

Top Answer

No, the company would not be able... View the full answer

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