f the invoice is paid on December 9, what is the amount to be paid? Does profit increase of decrease? Explain. b. If the invoice is paid on December 31, 2011, what is the amount to be paid?

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6. One method of conserving capital is by taking advantage of cash discounts. As an example — assume that an invoice for \$40,000 is dated December 1, 2011, with term 5/10 net 30.

a. If the invoice is paid on December 9, what is the amount to be paid? Does profit increase of decrease? Explain.
b. If the invoice is paid on December 31, 2011, what is the amount to be paid?

16. Ratio Analysis: Work out the following exercises:

a) A company with a current ratio of 2.5:1 has current liabilities of \$130,000. Indicate whether the individual transactions described below increase or decrease the current ratio, or the amount of working capital, and by how much in each case. Treat each item separately.

– Purchase of \$10,000 worth of merchandise on account.

– Company collects on \$5,000 of account receivable.

– Acquisition of \$40,000 machine, paid for with \$10,000 cash and balance due in 18 months (lump sum).

-Company pays dividends, \$10,000 in cash, \$10,000 is stock.

17. Given the following information, complete the balance sheet below:

Current ration (Current Assets/Current Liabilities) = 1.5
Debt/equity (Total Liabilities/Net Worth) = .4
Asset turnover (Total Sales/Total Assets) = 2.0
Gross margin (Sales – Cost of Goods Sold) = 20%
Inventory turnover (Sales/Inventory) = 14

Assets Liabilities

Current Assets: Current Liabilities:
Cash 4,000 Acc’t Payable 10,000
Acc’t Receivable Accrued Expenses

Inventory
Total C. A. Total C. L.

Long Term Liabilities:
Mortgage 20,000
Fixed Assets:
Buildings Net Worth
Land 60,000 Retained Earnings 100,000
Total F.A.

TOTAL ASSET Total Liabilities &

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