Question

The assets of Dallas & Associates consist entirely of current assets and net plant and equipment, and the firm has no excess cash. The firm has total assets of $2.5 million and net plant and equipment equals $2.2 million. It has notes payable of $145,000, long-term debt of $758,000, and total common equity of $1.45 million. The firm does have accounts payable and accruals on its balance sheet. The firm only finances with debt and common equity, so it has no preferred stock on its balance sheet.

Write out your answers completely. For example, 25 million should be entered as 25,000,000. Negative values, if any, should be indicated by a minus sign. Round your answers to the nearest dollar, if necessary.

1. What is the company's total debt?

   $  

2. What is the amount of total liabilities and equity that appears on the firm's balance sheet?

   $  

3. What is the balance of current assets on the firm's balance sheet?

   $  

4. What is the balance of current liabilities on the firm's balance sheet?

   $  

5. What is the amount of accounts payable and accruals on its balance sheet? (Hint: Consider this as a single line item on the firm's balance sheet.)

   $  

6. What is the firm's net working capital? If your answer is zero, enter "0".

   $  

7. What is the firm's net operating working capital?

   $  

8. What is the monetary difference between your answers to part f and g?

   $  

   What does this difference indicate?

   -Select-The difference indicates Notes payable balance.The difference indicates Accounts payable balance.The difference indicates Current liabilities balance.Item 9

Answer 1

Given

Total assets = $2.5 million = $2,500,000

Net fixed assets =$2.2 million = $2,200,000

Notes payable= $145,000

Long term debt=$758,000

Total common equity=$1.45 million = $1,450,000

Accounts payable and accruals are present, but amounts not given.

No preferred stock.

a.

Total debt includes all interest bearing debt, whether short term or long term

Total debt = short term debt + long term debt = notes payable + long term debt

= $145,000 + $758,000 = $903,000

Total debt = $903,000

b.

In balance sheet = assets = liabilities + equity

Total liabilities + equity = total assets = $2,500,000

c.

Current assets = Total assets – fixed assets = $2,500,000 - $2,200,000 = $300,000

Current assets =$300,000

d.

current liabilities + long term debt + common equity = Total liabilities + equity

current liabilities + $758,000 + $1,450,000 = $2,500,000

current liabilities + $2,208,000 = $2,500,000

current liabilities = $2,500,000 - $2,208,000 = $292,000

Current liabilities = $292,000

e.

current liabilities = Accounts payable and accruals + notes payable

as calculated in part d

$292,000 = Accounts payable and accruals + $145,000

Accounts payable and accruals = $292,000 - $145,000 = $147,000

Accounts payable and accruals = $147,000

f.

net working capital = current assets – current liabilities =$300,000 -   $292,000 = $8,000

Net working capital =$8,000

g.

net operating working capital = current assets – [current liabilities – interest bearing current liabilities]

here interest bearing current liabilities are notes payables, as notes carry interest rate

net operating working capital = $300,000 – [ $292,000 - $145,000]

= $300,000 - $147,000 = $153,000

Net operating working capital =$153,000

h.

Difference = $153,000 - $8,000 = $145,000 = notes payable balance

Answer: the difference indicates Notes payable balance.