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The current asset section of the Excalibur Tire Company’s balance sheet consists of cash, marketable securities,...

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 $ 1,010,000
Total assets $ 3,600,000
Current ratio 2.20
Acid-test ratio 1.20
Debt to equity ratio 1.5


Required:
Determine the following 2021 balance sheet items:
current assets

shareholders equity

long term assets

long term liabilites

Business   Accounting   
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Homework Answers

Answer #1

Current Assets = $2,222,000

Shareholders Equity = $1,440,000

Long Term Assets = $1,378,000

Long Term Liabilities = $1,150,000

Calculations :

Debt + Shareholders Equity = Total Assets

Debt to equity ratio = 1.5

So debt and equity are in the ratio 1.5 : 1

Total asset = $3,600,000

Total Debt = $3,600,000 * 1.5 /2.5 = $2,160,000

Share holders Equity = $3,600,000 * 1 /2.5 0= $1,440,000

Current ratio = Current Asset (C.A) / Current Liabilities (C.L) = 2.2

So, C.A = 2.2 * C.L (Equation 1 )

Acid Test ratio = Current Asset - Inventories / Current Liabilities = 1.2

C.A - $1,010,000 = 1.2 * C.L

So. C.A = 1.2 * C.L + $1,010,000 ( Equation 2)

From Equation 1 & Equation 2

2.2 * C.L = 1.2 * C.L + $1.010,000

2.2C.L - 1.2C.L = $1,010,000

1 C.L = $1,010,000

So Current Liabilities ( C.L) = $1,010,000

Current Assets (C.A) = 2.2 * C.L = 2.2 * $1,010,000 = $2,222,000

Long Term Assets = Total Assets - Current Assets = $3,600,000 - $2,222,000 = $1,378,000

Long Term Liabilities = Total Debt - Current Liabilities = $2,160,000 - $1,010,000 = $1,150,000

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