Question

You boss has asked you to evaluate the year-end balance sheets for Daniel's Karate Studios:

Assets:	2017	2016
Cash	$ 200,000	$ 170,000
Accounts receivable	964,000	800,000
Inventories	2,000,000	1,400,000
Total current assets	$3,164,000	$2,370,000
Net fixed assets	6,000,000	5,600,000
Total assets	$9,164,000	$7,970,000
Liabilities and equity:
Accounts payable	$1,400,000	$1,090,000
Notes payable	1,600,000	1,800,000
Total current liabilities	$3,000,000	$2,890,000
Long-term debt	2,500,000	2,500,000
Common stock	3,000,000	2,000,000
Retained earnings	664,000	580,000
Total common equity	$3,664,000	$2,580,000
Total liabilities and equity	$9,164,000	$7,970,000

Assume that the company's sales in 2016 and 2017 were equal.

Which of the following statements must be CORRECT?

Daniel's increased its notes payable bank debt in 2017.

Daniel's had negative net income in 2017.

Daniel's issued long-term debt in 2017.

Daniel's issued new common stock in 2017.

Daniel's repurchased some common stock in 2017.

Answer 1

The correct answer is option of Daniel's issued new common stock in 2017 since the same increased from $ 2,000,000 to $ 3,000,000

Option of Daniel's increased its notes payable bank debt in 2017 is incorrect since the notes payable has decreased and not increased in 2017 (From $ 1,800,000 to $ 1,600,000)

Option of Daniel's had negative net income in 2017 is incorrect since in 2017, the firm is showing retained earnings of $ 664,000

Option of Daniel's issued long-term debt in 2017 is incorrect since there is no change in long term debt from 2016 to 2017

Option of Daniel's repurchased some common stock in 2017 since the firm has issued common stock and not repurchased since the common stock increased from $ 2,000,000 to $ 3,000,000 and not decreased.

Do ask in case of any doubts.