Question

Question one

1. ABC Company reported Current Assets of $850,000 and Current Liabilities of $620,000. Calculate working capital and explain the results.
2. Medis Corporation has $11 million in total assets. It has $3.7 million in current liabilities, $2.1 million in long term debt, and $1.7 million in preferred stock. What is the total value of ordinary equity?
3. A firm had retained earnings balance of $6 million in the previous year. In the current year, its net income is $5 million. If it pays $1.7 million in ordinary dividends in the current year, what is the resulting earnings balance?

Answer 1

	ABC Company
	Particulars	Amt $
a	Current Assets	850,000
b	Current Liabilities	620,000
c	Working Capital =a-b=	230,000
	As ABC has positive working capital of $230,000 , it can
	pay off the current liabilities comfortably from the current
	assets without any working capital loan.
	This is of course assuming that the current assets are reasonably
	liquid and does not have huge inventory balance of lesser
	liquidity.
	Medis Corporation
	Particulars	Amt $
a	Total Assets	11,000,000
b	Total Liabilities & Equity =a=	11,000,000
c	Current Liabilities =	3,700,000
d	Long term Debt =	2,100,000
e	Total Liabilities =c+d=	5,800,000
f	Stockholders'Equity =b-e=	5,200,000
g	Preferred Stock	1,700,000
h	Common Stock =f-g=	3,500,000
	Retained Earning Statement
	Particulars	Amt $
a	Beginning Retained Earning Balance	6,000,000
b	Add: Net Income from current year	5,000,000
c	Less: Ordinary dividend paid in current year	1,700,000
d	Ending Retained Earning Balance =a+b-c=	9,300,000