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1. The assets of Dallas Limited consist entirely of current asset and net plant equipment. The...

1. The assets of Dallas Limited consist entirely of current asset and net plant equipment. The firm has total assets of RM2.5 million and net plant and equipment equals RM2 million. It has notes payable of RM150,000, long term debt of RM750,000 and total common equity of RM1.5 million. The firm does have account payable and accruals on its statement of financial position. The firm only finances with debt and common equity, so it has no preferred stock on its statement of financial position.
a) What is the amount of total liabilities and equity as appeared on the firm’s statement of financial position?
b) What is the balance of current assets on the firm’s statement of financial position?
c) What is the balance of current liabilities on the firm’s statement of financial position?
d) What is the amount of account payable and its accruals on its statement of financial
position? (Consider this as a single line item on the firm’s statement of financial position)

Solutions

Expert Solution

1. Amount of total liabilities and equity

Total liabilities and equity equal total assets.

Total Assets = RM 2.5 Million.

Thus, amount of total liabilities and equity (total liabilities) = RM 2.5 Million or RM 2,500,000

2. Current assets

Total Assets = RM 2.5 Million

Net Plant and equipment = RM 2 Million

Thus, balance of total assets will be current assets = RM 2.5 Million - RM 2 Million = RM 0.5 Million

Current assets = RM 0.5 Million or RM 500,000

3. Current Liabilities

Current Liabilities = Total Liabilities - long term debt - common equity

= 2.5-0.75-1.5 = RM 0.25 Million or RM 250,000

4. Accounts payables and accruals

Accounts payable and accruals are classified as current liabilities.

Total Current liabilities as per (3) above = RM 250,000

Notes payable also gets classified as current liabilities and it equals RM 150, 000.

Thus, Accounts payable and accruals = Total current liabilities - Notes payable

RM 250,000 - RM 150,000 = RM 100,000

Accounts payables and accruals = RM 100,000

Thus, the statement of financial position will be as below:

Assets RM Million
Net Plan and Equipment          2,000,000
Current Assets              500,000
Total Assets          2,500,000
Liabilities RM Million
Accounts payable and accruals              100,000
Notes Payable              150,000
Long term debt              750,000
Common equity          1,500,000
Total Liabilities          2,500,000

jeff jeffy answered 1 year ago
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