Question

Consider the following balance sheet for Big Dog Games, Inc. Because Big Dog has $800,000 of retained earnings, we know that the company would be able to pay cash to buy an asset with a cost of $200,000.

Answer 1

False

Step-by-step explanation:

Retained earnings are actually $800,000, but the company only has $50,000 in cash. Total assets are $1.4 million, but fixed assets are the largest account ($900,000). Big Dog would have to liquidate almost all of their inventory in order to pay for the asset.

The best thing they can do is purchase the asset on credit, since they do not have a lot of debt (liabilities).