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 $ 195,000

Total assets $ 1,670,000

Current ratio 3.7

Acid-test ratio 2.70

Debt to equity ratio 1.5

Compute the long-term liabilities for Bronco

Long-Term Liabilities:

Solutions

Expert Solution

Answer : Long-Term Liabilities = $807,000

Explanation :

We know that ,

Current ratio = Current Assets / Current Liabilities = 3.7 (given)

Acid-test ratio = (Current Assets - Inventories) / Current Liabilities = 2.70 (given)

Inventories = $195,000 (given)

Now , current assets be X & current Liabilities be Y

we can form the following equation

X / Y = 3.7..... Equation 1

or X = 3.7 Y..... Equation 2

&

(X -$195,000) / Y = 2.70 .... Equation 3

Now substituting the value of X from Equation 2 in Equation 3 we get ,

(3.70 Y - $195,000) / Y = 2.70

3.70 Y - 2.70 Y = $195,000

Y = $195,000

Thus X = 3.7 * $195,000 = $721,500

Therefore , Current assets = $721,500 ; Current liabilities = $195,000

Now again we know that ,

Total Assets = Total Liabilities + Equity = $1,670,000 (given)

Debt to equity = Debt ( ie Total Liabilities) / Equity = 1.5 (given)

Let Total Liabilities = A & Equity = B

We can form the following equations.

A / B = 1.5..... Equation 1

or A = 1.5 B ..... Equation 2

&

$1,670,000 = A + B... Equation 3

Now substituting the value of A from Equation 2 in Equation 3 we get ,

$1,670,000 = 1.5 B + B

or B = $668,000

Thus A = $1,670,000 -  $668,000 = $1,002,000

Therefore , Total Liabilities = $1,002,000 & Equity = $668,000

Again ,

Total Liabilities = Current Liabilities + Long‐term Liabilities

Long‐term Liabilities = Total Liabilities - Current Liabilities

= $1,002,000 - $195,000 = $807,000


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