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29 November, 23:47

The current asset section of the Excalibur Tire Company's balance sheet consists of cash, marketable securities, accounts receivable, and inventory. The December 31, 2021, balance sheet revealed the following:

Inventory $850,000

Total assets $2,900,000

Current ratio 2.60

Acid-test ratio 1.60

Debt to equity ratio 1.9

Required:

Determine the following 2021 balance sheet items.

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Answers (1)
  1. 30 November, 03:31
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    Current Assets = $2,210,000

    Shareholders Equity = $1,000,000

    Non-Current Assets = $690,000

    Long-term Liabilities = $1,050,000

    Explanation:

    Current Assets

    Current Ratio is Current Assets divided by Current Liabilities.

    Acid Test Ratio is Current assets less inventory divided by Current Liabilities.

    Equating the two we have,

    Current Assets / Liabilities - (Current Assets - Inventory) / Current Liabilities = 2.60 - 1.60

    (Current Assets - Current Assets - 850,000) / Current Liabilities = 1

    850,000/Current Liabilities = 1

    Current Liabilities = $850,000

    With Current Liability known, Current Assets can be calculated using the Current Ratio.

    2.60 = Current Assets / Current Liabilities

    2.60 = Current Assets / 850,000

    Current Assets = $2,210,000

    Shareholders Equity

    Debt to Equity Ratio of 1.9 is given.

    Formula for Debt to Equity ratio is,

    = Total Liabilities / Shareholders Equity

    Total Assets which is given can be calculated as,

    Total Liabilities + Shareholders Equity = Total Assets

    Total Liabilities + Shareholders Equity = 2,900,000

    Denote Shareholders Equity as s,

    Shareholders Equity being denominator means that it goes into Liabilities 1.9 times (Debt to Equity Ratio)

    Therefore,

    1.9s + s = 2,900,000

    2.9s = 2,900,000

    s = $1,000,000

    Shareholders Equity = $1,000,000

    Non-Current Assets

    Non - Current Assets = Total Assets - Current Assets

    = 2,900,000 - 2,210,000

    = $690,000

    Long-term Liabilities

    Liabilities and Equity fund the company assets.

    Total Assets = Shareholders Equity + Current Liabilities + Long-term Liabilities

    Long Term Liabilities = Total Assets - Shareholders Equity - Current Liabilities

    = 2,900,000 - 1,000,000 - 850,000

    = $1,050,000

    Long-term Liabilities = $1,050,000
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