Show the Effect of the Following Transactions on Cash, Net

question 126

Essay

Show the effect of the following transactions on cash, net working capital, and the current ratio.Assume that the current ratio exceeds 1.0 to begin.
The firm borrows $1,000 short-term and pays $500 in accounts payable.
The firm factors $1,000 in receivables at a 5% discount.
The firm issues $1,000 in long-term bonds, using the proceeds to pay $800 in payables and purchase $200 in marketable securities.

Appreciate the role of capital and labor in production costs.

Recognize the implications of opportunity costs on business decisions and personal finance.

Analyze decision-making processes in "how much" and "either-or" scenarios.

Understand the impact of implicit costs on economic profit.

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Definitions:

Sum Certain

A specified amount agreed upon within a contract that is clear and not subject to change.

Negotiable Instrument

A document guaranteeing the payment of a specific amount of money, either on-demand or at a set time.

Payable on Demand

A financial term indicating that a debt or other financial obligation is due for payment immediately or whenever the creditor requests it.

Time of Payment

The specific period or date by which payment for goods or services is due or expected.