Question

In: Accounting

Bronco Electronics' current assets consist of cash, marketable securities, accounts receivable, and inventories. The following data...

Total assets $ 1,790,000

Current ratio 4.0

Acid-test ratio 2.40

Debt to equity ratio 1.5

Required:

Compute the long-term liabilities for Bronco:

Solutions

Expert Solution

A) Current Ratio = Current Assets / Current Liabilities

Current Ratio = 4

4 = Current Assets / Current Liabilities

Current Assets = 4 * Current Liabilities

Current Assets = 4 Current Liabilities

This means that Current Assets is 4 Times of Current Liabilities

Acid Test Ratio = Quick Assets / Current Liabilities

Acid Test Ratio = 2.4 : 1

Current Assets = 4 Current Liabilities

Inventories = $ 160,000

Quick Assets = Current Assets - Inventories

Acid Test Ratio = 4 Current Liabilities - 160,000 / Current Liabilities

2.4 * Current Liabilities = 4 Current Liabilities - 160,000

160,000 = 4 Current Liabilities - 2.4 Current Liabilities

160,000 = 1.6 Current Liabilities

Current Liabilities = 160,000 / 1.6

Current Liabilities = $ 100,000

B) Debt Equity Ratio = Total Debt / Total Equity

Debt Equity Ratio = 1.5

Debt Equity Ratio = Total Debt / Total Equity

1.5 = Total Debt / Total Equity

Total Debt = 1.5 Total Equity

Total Debt + Total Equity = Total Assets

Total Debt + Total Equity = 17,90,000

1.5 Total Equity + 1 Total Equity = 17,90,000

2.5 Total Equity = 17,90,000

Total Equity = 17,90,000 / 2.5

Total Equity = $ 716,000

Total Debt = 716,000 * 1.5 Times

Total Debt = $ 10,74,000

C ) Long Term Liabilities = Total Debt - Current Liabilities

Long Term Liabilities = 10,74,000 - 100,000

Long Term Liabilities for Bronco Electronics = $ 974,000

Total Debt in the formula of Debt Equity Ratio means Total Liabilities as well.

Current Liabilities is already calculated above.

ekkarill92 answered 1 year ago

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