Summary balance sheet data for Greener Gardens Co.is shown below (in thousands of dollars).The company is in a highly seasonal business, and the data show its assets and liabilities at peak and off-peak seasons: $\begin{array}{c}
\begin{array}{l}
\text {Cash}\
\text {Marketable securities}\
\text {Accounts receivable}\
\text {Inventories}\
\text {Net fixed assets}\
\text {Total assets}\
\
\text {Payables and accruals}\
\text {Short-term bank debt}\
\text {Long-term debt}\
\text {Common equity}\
\text {Total cliams}
\end{array}
\begin{array}{rr}
\text { Peak } & \text { Off-Peak } \
\$ 50 & \$ 30 \
0 & 20 \
40 & 20 \
100 & 50 \
\underline{500} & \underline{500} \
\$ 690 & \$ 620 \
& \
\$ 30 & \$ 10 \
50 & 0\
300 & 300 \
310 & 310 \
\underline{\$ 690} &\underline{ \$ 620}
\end{array}
\end{array}$
From this data we may conclude that
A) Greener Gardens' current asset financing policy is relatively aggressive; that is, the company finances some of its permanent assets with short-term discretionary debt.
B) Greener Gardens follows a relatively conservative approach to current asset financing; that is, some of its short-term needs are met by permanent capital.
C) Without income statement data, we cannot determine the aggressiveness or conservatism of the company's current asset financing policy.
D) Without cash flow data, we cannot determine the aggressiveness or conservatism of the company's current asset financing policy.
E) Greener Gardens' current asset financing policy calls for exactly matching asset and liability maturities.

Question

Summary balance sheet data for Greener Gardens Co.is shown below (in thousands of dollars).The company is in a highly seasonal business, and the data show its assets and liabilities at peak and off-peak seasons: $\begin{array}{c}
\begin{array}{l}
\text {Cash}\
\text {Marketable securities}\
\text {Accounts receivable}\
\text {Inventories}\
\text {Net fixed assets}\
\text {Total assets}\
\
\text {Payables and accruals}\
\text {Short-term bank debt}\
\text {Long-term debt}\
\text {Common equity}\
\text {Total cliams}
\end{array}
\begin{array}{rr}
\text { Peak } & \text { Off-Peak } \
\$ 50 & \$ 30 \
0 & 20 \
40 & 20 \
100 & 50 \
\underline{500} & \underline{500} \
\$ 690 & \$ 620 \
& \
\$ 30 & \$ 10 \
50 & 0\
300 & 300 \
310 & 310 \
\underline{\$ 690} &\underline{ \$ 620} 
\end{array}
\end{array}$
  From this data we may conclude that
A) Greener Gardens' current asset financing policy is relatively aggressive; that is, the company finances some of its permanent assets with short-term discretionary debt.
B) Greener Gardens follows a relatively conservative approach to current asset financing; that is, some of its short-term needs are met by permanent capital.
C) Without income statement data, we cannot determine the aggressiveness or conservatism of the company's current asset financing policy.
D) Without cash flow data, we cannot determine the aggressiveness or conservatism of the company's current asset financing policy.
E) Greener Gardens' current asset financing policy calls for exactly matching asset and liability maturities.

Quizplus · Accepted Answer

The data shows that at peak season, Greener Gardens has significant amounts of accounts receivable and inventory, which are usually financed by short-term loans. However, even during the off-peak season, the company still has some short-term debt, indicating that part of its short-term needs are being financed by permanent capital. This suggests a relatively conservative approach to current asset financing. Without income statement and cash flow data, we cannot fully determine the company's financing policy, but based on the balance sheet data alone, option B is the best choice.

Summary Balance Sheet Data for Greener Gardens Co From This Data We May Conclude That A) Greener Gardens

Summary Balance Sheet Data for Greener Gardens Co From This Data We May Conclude That
A) Greener Gardens