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Heilig Case
Part One 1. What facts presented in the case suggest that Heilig-Meyers might have trouble continuing as a going concern? * From Exhibit 2 we can see that Heilig- Meters suffered net losses for each of the three fiscal years ended February 29, 2000. * From Exhibit 4 we can see that Heilig- Meters had negative cash flow from operations for 1999 and 2000. * Heilig–Meyers’ long-tern senior unsecured debt was rated BB – by Standard & Poor’s. * Retained interests in securitized receivables comprised more than 10% of Heilig- Meyers’ February 29, 2000 total assets, and were susceptible to significant loss in value if the collection rate dropped. * Heilig- Meyers had to amend its bank debt agreements to maintain covenant compliance because of losses incurred during fiscal years 1999 and 2000. 2. What facts presented in the case suggest that Heilig-Meyers will be able to continue in business at least through February 28, 2001? * The amount of Heilig-Meyers’ debt was significantly lower than it had been in recent years. * Comparable store sales in the Heilig-Meyers and RoomStore divisions increased 2.1% during the fiscal year 2000. * Heilig-Meyers’ stockholders’ equity of fiscal year 2000 was much higher than the losses occurred this year. 3. Based on the information in the case, do you think Heilig-Meyers’ auditors should have modified their report on the company’s February 29, 2000 financial statements to express substantial doubt about Heilig- Meyers’ ability to continue as a going concern? Why or why not?
I think Heilig-Meyers’ auditors should have modified their report to express substantial doubt about Heilig-Meyers’s ability to continue as a going concern because from question one, we can conclude that there are sufficient doubt that Heilig-Meyers might have trouble continuing as a going concern. The

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