Question

Consider the following balance sheet, for Games Inc. Because Games has $800,000 of retained earnings, we know that the company would be able to pay cash to buy an asset with a cost of $200,000. Cash $ 50,000 Accounts payable $ 100,000 Inventory 200,000 Accruals 100,000 Accounts receivable 250,000 Total CL $ 200,000 Total CA $ 500,000 Debt 200,000 Net fixed assets $ 900,000 Common stock 200,000 Retained earnings 800,000 Total assets $1,400,000 Total L & E $1,400,000
a. True
b. False

Answer 1

Answer:

b. False

Explanation:

As the company wants to buy an asset of $200,000 but the company has only $ 50,000. The remaining balance$150,000 ($200,000 - $50,000) would be borrowed to buy the asset or sell the fixed assets

Because by using the cash balance, the company would not able to purchase the asset.  

So, only cash is not required other things also matters.  

Thus, the given statement is false