Question

In: Accounting

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

Bronco Electronics' current assets consist of cash, marketable securities, accounts receivable, and inventories. The following data were abstracted from a recent financial statement: Inventories $ 160,000

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 2 years ago
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