We’ve filled in the answers in the following table. Remember, increases in assets and decreases in liabilities indicate that we spent some cash. Decreases in assets and increases in liabilities are ways of getting cash. Philippe used its cash primarily to purchase fixed assets and to pay off short term debt. The major sources of cash to do this were additional long term borrowing, reductions in current assets, and additions to retained earnings.
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PHILIPPE CORPORATION Balance Sheets as of December 31, 2001 and 2002 ($ in millions) |
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|
2001 |
2002 |
Change |
Source or |
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|
Assets |
Use of Cash |
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|
Current assets |
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|
Cash |
$ 210 |
$ 215 |
+ $ 5 |
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|
Accounts receivable |
355 |
310 |
45 |
Source |
|
|
Inventory |
507 |
328 |
179 |
Source |
|
|
Total |
$1,072 |
$ 853 |
$219 |
Use |
|
|
Fixed assets |
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|
Net plant and equipment |
$6,085 |
$6,527 |
+$442 |
Use |
|
|
Total assets |
$7,157 |
$7,380 |
+$223 |
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|
Liabilities and Owners’ Equity |
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|
Current liabilities |
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|
Accounts payable |
$ 207 |
$ 298 |
+$ 91 |
Source |
|
|
Notes payable |
1,715 |
1,427 |
288 |
Use |
|
|
Total |
$1,922 |
$1,725 |
$197 |
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|
Long term debt |
$1,987 |
$2,308 |
+$321 |
Source |
|
|
Owners’ equity |
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|
Common stock and paid in surplus |
$1,000 |
$1,000 |
+$ 0 |
— |
|
|
Retained earnings |
2,248 |
2,347 |
+99 |
Source |
|
|
Total |
$3,248 |
$3,347 |
+$ 99 |
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|
Total liabilities and owners’ equity |
$7,157 |
$7,380 |
+$223 |
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The current ratio went from $1,072/1,922 =. 56 to $853/1,72= .49, so the firm’s liquidity appears to have declined somewhat. Over all, however, the amount of cash on hand increased by $5.