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The Reformulating the Balance Sheet: 1. All assets are either operating or non-operating. Operating assets are...

The Reformulating the Balance Sheet:

1. All assets are either operating or non-operating. Operating assets are used to generate sales while non-operating assets are typically excess monies that have not yet been invested in operating assets or excess cash that will be returned to the bondholders and stockholders at some point in the future.

2. Typical non-operating assets are excess cash or cash equivalents and investments. All other assets are typically operating.

3. Typical non-operating liabilities are current portion of long term debt, long term debt, and capitalized lease obligations. All other liabilities including accounts payable, and accrued expenses are typically operating liabilities.

4. Invested capital equals operating assets minus operating liabilities.

5. Net non-operating assets or net liabilities equals non-operating assets minus non-operating liabilities.

Sample Balance Sheet:

Cash needed for operations200Accounts payable 300

Excess cash600Accrued expenses 250

Inventory400Current portion of Long term debt 150

Investment in marketable securities300Long term debt 1000

Plant property and Equipment 1100Stockholders Equity 900

Total assets 26002600

What are the two non-operating assets?What do they sum to?

What are the two non-operating liabilities?What do they sum to?

What are the three operating assets?What do they sum to?

What are the two operating liabilities?What do they sum to?

Calculate the invested capital.Calculate the net non-operating liability.

Please construct a balance sheet with invested capital on the left side and the sum of net non-operating liabilities and stockholders’ equity on the other, the balance sheet must balance.

Solutions

Expert Solution

Query-What are the two non-operating assets?What do they sum to?

Reply-The two non-operating assets are:

Excess Cash 600
Investment in marketable securities 300

Sum of above 900

Query-What are the two non-operating liabilities?What do they sum to?

Reply-The two non operating liabilities are:

Current portion of Long term debt 150
Long term debt 1000

Sum of above 1150

Query-What are the three operating assets?What do they sum to?

Reply- The three operating assets are:

Cash needed for operations 200
Inventory 400
Plant property and Equipment 1100

Sum of above 1700

Query-What are the two operating liabilities?What do they sum to?

Reply-The two operating liabilities are:

Accounts payable 300
Accrued Expenses 250

Sum of above 550

Query-Calculate the invested capital.

Reply-Invested Capital=Operating Assets-Operating Liabilities

=1700-550

=1150

Query-Calculate the net non-operating liability.

Reply-Net Non-operating liability=Non Operating Liabilities-Non Operating Assets

=1150-900

=250

Query-Please construct a balance sheet with invested capital on the left side and the sum of net non-operatingliabilities and stockholders’ equity on the other, the balance sheet must balance.

Reply- The required Balance Sheet is as follows:

Particulars	Amount	Particulars	Amount
Invested Capital	1150	Net Non Op. Liabilities	250
		Stock Holder's Equity	900
	1150		1150

jeff jeffy answered 10 months ago

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