Question

The following December 31, 2021, fiscal year-end account balance information is available for the Stone Corporation:

Cash and cash equivalents	$	6,200
Accounts receivable (net)		32,000
Inventory		72,000
Property, plant, and equipment (net)		180,000
Accounts payable		51,000
Salaries payable		23,000
Paid-in capital		160,000

The only asset not listed is short-term investments. The only liabilities not listed are $42,000 notes payable due in two years and related accrued interest of $1,000 due in four months. The current ratio at year-end is 1.5:1.

Required:
Determine the following at December 31, 2021:

	1. Total current assets 2. Short-term investments 3. Retained earnings

Answer 1

Information mentioned in the question:

Current ratio = 1.5 :1

Current ratio = current assets / current liabilities

Current liabilities = salaries payable + accounts playable + accrued interest = 51000 + 23000 + 1000 = 75000

Now to calculate total current assets:

Current ratio = current assets / current liabilities

Total current assets = current ratio * current liabilities

Total current assets = 1.5 * 75000

Total current assets = 112,500

Now to calculate short term investments:

Current assets = cash + accounts receivables + inventory + short term investments

short term investments = Current assets - [cash + accounts receivables + inventory]

short term investments = 112500 - [6200 + 32000 + 72000]

short term investments = 2300

Now to calculate retained earnings:

Current assets + fixed assets = Current liabilities + Long term liabilities + paid in capital + retained earnings

Putting values in formula:

112500 + 180000 = 75000 + 42000 + 160000 + retained earnings

292500 = 277000 +  retained earnings

retained earnings = 292,500 - 277,000

retained earnings = 15,500

1.	Total current assets	112,500
2.	Short-term investments	2300
3.	Retained earnings	15,500