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Consider the balance sheet of Wilkes Industries as shown below. Because Wilkes has $800,000 of retained earnings, the company would be able to pay cash to buy an asset with a cost of $200,000.

Cash $50,000
Accounts payable $100,000
Inventory $200,000
Accruals $100,000
Accounts receivable $250,000
Total CL $200,000
Total CA $500,000
Debt $200,000
Net fixed assets $900,000
Common stock $200,000
Retained earnings $800,000
Total assets $1,400,000
Total L & E $1,400,000

True or False

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Solution Summary

This solution analyses the balance sheet of Wilkes Industries and determines if the company can pay cash to buy an asset with a cost of $200,000.

Solution Preview

Company's Balance sheet before purchasing an asset is as under:

Assets:

Cash $50000
Inventory $200000
Account Receivable $250000
Total Current assets> $500000
Fixed assets $900000
Total Assets ...

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