Clarkson Lumber

Topics: Balance sheet, Generally Accepted Accounting Principles, Liability Pages: 4 (868 words) Published: March 24, 2013
Case Study:
Clarkson Lumber Company
Albert M. Aguirre

February 11, 2012

1. Mr. Clarkson needed to borrow money to address the shortage of cash coming in. Although the business was profitable the bulk of the assets of the company were in its receivables and inventory. The current loan that it gets from Suburban National Bank is not enough to supplement the cash flow that it gets versus the projected expenses that the company had to pay and was maturing. There were also notes payable to the bank and Mr. Holtz for the first quarter of 1996. The shortage in cash was a disadvantage to the company because they could not avail of purchase discounts. Being short in cash Mr. Clarkson would have to pick between paying the notes payable or purchasing new products for sale. The added credit would help ease the company’s cash flow problem. 2. The preliminary amount of $750,00.00 as a new credit line for Mr. Clarkson’s company is sufficient enough to cover the notes and other payables of the company. If Mr. Clarkson gets a new credit from Northup Bank he would have to retire the existing loan of $399,000.00 with Suburban Bank, plus the note payable to Mr. Holtz of $100,000.00, plus other payables and expenses around $250,00.00. The extra amount of money of around $100,000.00 can be used by Mr. Clarkson to purchase materials with trade discounts.

Projected income statement for 1996 (thousands of dollars)| | |
| 1996|
| |
Net sales| $5,500 |
Cost of goods sold:| |
Beginning inventory| $587 |
Purchases (79% of sales)| $4,345 |
| $4,932 |
Ending inventory| $802 |
Total cost of goods sold (75.1% of sales)| $4,131 | Gross Profit| $1,370 |
Operating expenses (20.6% of sales)| $1,133 |
Operating Profit| $237 |
Purchase Discounts*| $70.52 |
Interest expense**| $90.53 |
Net income before income taxes | $216 |
Provision for income taxes...
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