Question

# Glen’s Tobacco Shop has total assets of \$100.0 million. Fifty percent of these assets are financed...

 Glen’s Tobacco Shop has total assets of \$100.0 million. Fifty percent of these assets are financed with debt of which \$30.9 million is current liabilities. The firm has no preferred stock but the balance in common stock and paid-in surplus is \$29.4 million.
 What is the balance for long-term debt and retained earnings on Glen’s Tobacco Shop’s balance sheet? (Enter your answers in millions of dollars rounded to 1 decimal place.)

Basic Accounting equation says

Total Asset = Total Liabilities + Equity

Calculation of long term debt:

Given Total Assets = \$100 million

50% of which is financed with Debt, thus total liability component = \$50 million

Total Liability = Long term debt + current liability

\$ 50 million = long term debt + \$ 30.9 million

Thus Long term debt = \$19.1 million

Now, let us calculate retained earnings:

As total liability was \$50 million, so remaining \$50 million is equity capital:

Equity Capital = paid in common stock + Reserve and surplus (Retained Earnings)

\$50 million = \$29.4 million + Retained earnings

Thus Retained earnings = \$ 20.6 million.

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