Well you made it and you have hung up your shingle that you are a CPA and are prepared to take on new clients. You sit down at your desk, turn on your shiny new Dell Laptop with wireless connection, take a sip of your steamy hot Starbucks Coffee and gaze at that beautiful shiny new wooden desk (that set you back $1000). Just then the door flies open and this big 6'4" man with a ten gallon hat steps into your office. He has big old cowboy boots caked in dirt and a shiny rhinestone jacket and new Levi Dungarees. He sits down leans back and puts his dirty boots on that shiny new desk (size 14 of course).
He says, "My name is Tex A. Slong, my business is cattle, and you have to have to help me. They are running all over the place." You look at Mr. Slong bewildered, "what is running all over the place, also could you please take your boots down I cannot see your face." "Oh, sorry, little lady (or son), the cattle, the cattle are everywhere, my wife says if I don't do something she'll leave me. Got one in my bedroom, so you ask, "What happened? " Tex answers,
"I don't know, and my business is going to pots, I never have any cash to pay my creditors, I really need your help." You ask Tex is he brought anything for your too look at and he pulls this crumply piece of paper from his wallet. "Here, I put this together in the car coming over here."
This is what the paper looked like:

Using the knowledge of ratios, look at the numbers above and see if you can identify Tex's problems Assume all sales are credit Net 30 sales. What advice would you offer Tex in order to help out the situation? Should Tex liquidate some of his investments to pay his bills until something changes? How is he going to get the money to pay his creditors?

Balance As of Dec 31 Sheet 2007 2008 ASSETS 2,500 500,000 Cash Investments 1,000,000 1,000,000 200,000 Accounts Rec. 500,000 1,700,000 1,502,500 Total INVENTORY 2,000,000 Machinery 2,000,000 -1,100,000 -1,000,000 Less Deprec. Cattle 3,000,000 2,500,000 3,900,000 3,500,000 LIABILITIES 500,000 500,000 Long Term Debt 100,000 Short Term Debt 100,000 EQUITY Retained Eamings 3,400,000 3,000,000 Income Statement 2008 2007 Gross Sales 2,000,000 2,500,000 Cost of Goods Sold 1,300,000 1,500,000 Net Sales 700,000 1,000,000| Expenses 650,000 600,000 Net Income 50,000 400,000