Question

The current asset section of the Excalibur Tire Company’s balance sheet consists of cash, marketable securities, accounts receivable, and inventory. On December 31, 2021, the balance sheet revealed the following:

Inventory ................................$ 840,000

Total assets .........................$ 2,800,000

Current ratio ...................................2.25

Acid-test ratio ...................................1.2

Debt to equity ratio .........................1.8

 

Required:

Determine the following 2021 balance sheet items:

1. Current assets

2. Shareholders’ equity

3. Long-term assets

4. Long-term liabilities

 

Answer 1

1. 

Acid-test ratio = Quick assets ÷ Current liabilities =  1.20     

Quick assets = Current assets – Inventory  

Quick assets = Current assets – $840,000  

 

Current assets ÷ Current liabilities =               2.25    

Current assets – $840,000 ÷ Current liabilities =     1.20     

$840,000 ÷ Current liabilities =                   1.05    

Current liabilities = $800,000

Current assets ÷ $800,000 = 2.25                 

Current assets = $1,800,000

 

2.  

Debt to equity ratio = Total liabilities ÷ Shareholders’ equity = 1.8

Total liabilities + Shareholders' equity = Total assets 

Total liabilities + Shareholders' equity = $2,800,000 

Let x equal shareholders' equity                 

1.8 x + x = $2,800,000                        

x = $1,000,000 = Shareholders' equity

 

3.  

Long-term assets = Total assets – Current assets

Long-term assets = $2,800,000 – $1,800,000 = $1,000,000

 

4.     

Long-term liabilities = Total assets – Current liabilities – Shareholders' equity Long-term liabilities = $2,800,000 – $800,000 – $1,000,000 = $1,000,000

Current assets = $1,800,000

Shareholders' equity = $1,000,000

Long-term assets = $1,000,000

Long-term liabilities = $1,000,000