Question

In: Accounting

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 $ 910,000
Total assets $ 3,000,000
Current ratio 2.60
Acid-test ratio 1.30
Debt to equity ratio 1.5


Required:
Determine the following 2021 balance sheet items:

current assets:

shareholders' equity:

long-term assets:

long-term liabilities:

please show work for better understanding

Solutions

Expert Solution

Answer:

current assets: $1820000

shareholders' equity: $1200000

long-term assets: $1180000

long-term liabilities: $1100000

Explanation:

Step 1:

Current Ratio = 2.60

Current Asset / Current Laibilities = 2.60

Current Asset = 2.60 Current Liabilities

Step 2:

Acid Test Ratio = (Current Asset - Inventory) / Current Liabilities

1.30 = (2.60 current liabilities - $910000) / Current Liabilities

1.30 Current liabilities = 2.60 current liabilities - $910000

2.60 current liabilities - 1.30 Current liabilities = $910000

1.30 Current liablities = $910000

current liabilities = $910000 / 1.3 = $700000

Current Asset = 2.60 x $700000 = $1820000

Step 3:

Total Asset = $3000000

Current Asset = $1820000

Long term assets = Total Asset - Current Asset = $3000000 - $1820000 = $1180000

step 4:

Debt to equity = 1.5

Total Debt / Equity = 1.5

Total Debt = 1.5 x Equity

Total Asset = Total Debt + Total shareholder's equity

$3000000 = 1.5 Equity + Equity

shareholder's Equity = $3000000 / 2.5 = $1200000

Total Debt = $1200000 x 1.5 = $1800000

Total Debt = Long term liability + Current liability

$1800000 = Long term liability + $700000

longterm liability = $1800000 - $700000 = $1100000.


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