the major sources of cash to do this were additional long term borrowing reductions 556214

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.

PHILIPPE CORPORATION

Balance Sheets as of December 31, 2001 and 2002

($ in millions)

2001

2002

Change

Source or

Assets

Use of Cash

Current assets

Cash

$ 210

$ 215

+ $ 5

Accounts receivable

355

310

45

Source

Inventory

507

328

179

Source

Total

$1,072

$ 853

$219

Use

Fixed assets

Net plant and equipment

$6,085

$6,527

+$442

Use

Total assets

$7,157

$7,380

+$223

Liabilities and Owners’ Equity

Current liabilities

Accounts payable

$ 207

$ 298

+$ 91

Source

Notes payable

1,715

1,427

288

Use

Total

$1,922

$1,725

$197

Long term debt

$1,987

$2,308

+$321

Source

Owners’ equity

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

Total liabilities and owners’ equity

$7,157

$7,380

+$223

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.

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