The Following Is the Balance Sheet of Able Corporation Immediately

question 38

Essay

The following is the balance sheet of Able Corporation immediately prior to deciding how to finance the purchase of a $300 addition to its building.
Able Corporation
Balance Sheet
December 31, 2018
$\begin{array}{lr}\text { Assets }\\\text { Cash } & \$ 310 \\\text { Accounts receivable } & 260 \\\text { Building } & 380 \\\text { Land } & 370 \\{\text { Total assets }} & \$ 1,320\\\text { Liabilities and Shareholders' Equity }\\\text { Accounts payable } & \$ 190 \\\text { Long-term bonds payable } & 620 \\\text { Contributed capital } & 340 \\\text { Retained earnings } & 170 \\\text { Total liabilities \& shareholders' equity } & \$ \underline{1,320}\end{array}$
The bonds payable contract agreement requires current assets to be twice as much as current liabilities. Assume the $300 addition to the building is to be paid in cash and financed by issuing more stock. Calculate and explain the maximum cash that Able can pay and still honor its debt agreement.

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Definitions:

Z Distribution

A normal distribution with a mean of zero and a standard deviation of one, also known as a standard normal distribution.

95th Percentile

A value below which 95% of the data points in a data set fall.

Mean

The arithmetic average of a set of values or quantities, calculated by dividing the total of all values by the number of values.

Standard Normal

A normal distribution with a mean of zero and a standard deviation of one, used as a basis for comparison with other normal distributions.