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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 $ 1,000,000 Total assets $ 4,000,000 Current ratio 2.20 Acid-test ratio 1.40 Debt to equity ratio 1.5 Determine the following 2021 balance sheet items:

a. Current Assets?

b. Shareholder's Equity?

c. Long-term assets?

d. Long-term liabilities?

Solutions

Expert Solution

Working :

Current asset ratio = Current asset /current liabilities

2.20 =CA/CL

CA =2.20 CL                   [Equation 1 ]

Now,

Acid-test ratio = [Current asset -inventory ]/current liabilities

     1.40 = [CA - 1,000,000]/CL

     1.40 CL = [CA-1,000,000]

putting the value of CA from equation 1

    1.40 CL = [2.20CL -1,000,000]

    2.20 CL -1.40CL = 1000000

       .80 CL = 1,000,000

         CL = 1,000,000/.80

             = 1,250,000

a)Current asset = 2.20* 1,250,000

               = $ 2,750,000

b)Debt to equity ratio = Total debt /total equity

      1.5 =TD /TE

      TD = 1.5 TE

Nowusing accounting equation

Total asset =Total debt +total equity

4,000,000 = 1.5 TE +TE

4,000,000 = 2.5 TE

TE = 4,000,000 /2.5

        = 1,600,000

Total equity = $ 1,600,000

Shareholder's Equity = 1,600,000

c)Long term assets = Total asset - current asset

            = 4,000,000 - 2,750,000

           = 1,250,000

d)Total asset =Total debt +total equity

      4,000,000 = Ttal debt + 1,600,000

      Toal debt = 4000000-1600000

               = 2400000

Long term liabilities = Total debt -current liabilities

                    = 2400000- 1,250,000

                    = $ 1150000

ekkarill92 answered 7 months ago
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