Purchase Solution

# Total Amount of Cash Paid for Its Inventory Purchases

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Ending Balance Beginning Balance
Cash 18,000 17,000
Acts Receivable 59,000 44,000
Inventory 72,000 64,000
Property and Equip 64,000 50,000
Acts Payable 28,000 16,000
Bonds Payable 28,000 24,000
Common Stock 38,000 34,000
Retained Earnings 65,000 51,000

? Net income was \$18,000, which included sales of \$300,000 and gross profit of \$100,000
? Bing's closest competitor had sales of \$450,000 and net income of \$18,000. It collected \$414,000 in cash from its customers
? The company sold equipment for \$14,000 that had a book value of \$6000
? Bing recorded \$8000 of depreciation expense
? The company issued bonds payable at book value

1. Compute the total amount of cash the company paid for its inventory purchases (if any)
2. Bing's board of directors wants to invest the retained earnings in a lucrative venture that pays more than 12 percent ROI. How much could the company safely invest assuming that the level of assets it now holds is required for operations and no additional borrowing is possible? Explain.

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The solution discusses the total amount of cash paid for its inventory purchases.

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Question 1
Amount paid for inventory = (\$300,000-\$100,000)+(\$72,000-\$64,000)-(\$28,000-\$16,000) = \$200,000

Question 2
Bonds payable weight = 28,000/(28,000+38,000+54,000+65,000) = 15%
Common stock* = (38,000+54,000+65,000)/(28,000+38,000+54,000+65,000) = 85%
Market value of Common stock is assumed to be equal to its book ...

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