Question

Anthony Walker, the CFO of Sandhill Automotive, Inc., is putting together this year's financial statements. He has gathered the following balance sheet information: The firm had a cash balance of $23,015, accounts payable of $163,257, common stock of $312,000, retained earnings of $512,159, inventory of $210,800, goodwill and other assets equal to $78,656, net plant and equipment of $715,000, and short-term notes payable of $21,115. It also had accounts receivable of $141,258 and other current assets of $11,223. How much long-term debt does Sandhill Automotive have?

Long-term debt

$

Answer 1

Before calculating the long-term debt of Sandhill Automotive, Inc. lets understand the accounting equation.

Accounting Equation: The accounting equation is considered to be the foundation of the double-entry accounting system. The accounting equation shown on the balance sheet where by the total of all the company’s assets equals the sum of the company’s liabilities and stockholders’ equity.

Balance sheet equation: Assets = Liabilities + Stockholders’ Equity

Now for calculating the long-term debt we need to calculate first total assets then we need deduct stockholders’ equity to get total liabilities. Then from total liabilities we need to deduct all the liabilities given here to get long-term debt.

So, Long-term debt of Sandhill Automotive, Inc. = $171,421

Note: It is assumed that apart from accounts payable, short-term notes payable and long-term debt Sandhill Automotive, Inc. does not have any other liabilities.