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Correct Statement

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2005-2006 Balance Sheet for Morrison Enterprises:

Assets: 2006 2005
Cash $200,000 $ 170,000
Accounts Receivable 864,000 700,000
Inventories 2,000,000 1,400,000
Total Current Assets 3,064,000 2,270,000
Net Fixed Assets 6,000,000 5,600,000
Total Assets 9,064,000 7,870,000

Liabilities & Equity:
Accounts Payable $1,400,000 $1,090,000
Notes Payable 1,600,000 1,800,000
Total Current Liabilities $3,000,000 $2,890,000
Long-Term Debt 2,400,000 2,400,000
Common Stock 3,000,000 2,890,000
Retained Earnings 664,000 580,000
Total Common Equity 3,664,000 2,580,000
Total Liabilities & Equity 9,064,000 7,870,000

Morrison has never paid a dividend on its common stock, and it issued $2,400,000 of 10 year non-callable long term debt in 2005. As of the end of 2006, none of the principal on this debt had been repaid. Assume that the company's sales in 2005 and 2006 were the same. Which of the following must be correct?

A) Morrison increased its short-term bank debt in 2006.
B) Morrison issued long-term debt in 2006
C) Morrison issued new common stock in 2006
D) Morrison repurchased some common stock in 2006.
E) Morrison had a negative net income in 2006.

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2005-2006 Balance Sheet for Morrison Enterprises:

Assets: 2006 2005
Cash $200,000 $ 170,000
Accounts Receivable 864,000 700,000
Inventories 2,000,000 1,400,000
Total Current Assets 3,064,000 2,270,000
Net Fixed Assets 6,000,000 ...

Solution Summary

The solution explains the correct statement from the given alternatives

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