Question

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

Inventory	$	1,010,000
Total assets	$	3,600,000
Current ratio		2.20
Acid-test ratio		1.20
Debt to equity ratio		1.5

Required:
Determine the following 2021 balance sheet items:

	1. Current assets $2,222,000selected answer correct 2. Shareholders' equity $1,440,000selected answer correct 3. Long-term assets $1,378,000selected answer correct 4. Long-term liabilities $1,057,000selected answer incorrect

Answer 1

Ans:

Except 4 All are correct

1.

Current Ratio = Current Assets / Current Liabilities

2.2 = Current Assets / Current Liabilities

Current Assets = 2.2 * Current Liabilities

Acid Test Ratio = Liquid Assets / Current Liabilities

Acid Test Ratio = Current Assets - Inventory / Current Liabilities

Acid Test Ratio = 2.2 * Current Liabilities - Inventory / Current Liabilities (Proved above)

1.2 = (2.2 * Current Liabilities - $1,010,000) / Current Liabilities

1.2 Current Liabilities = 2.2Current Liabilities – 1010,000

$1010,000 = 2.2 Current Liabilities – 1.2 Current Liabilities

$1010,000 = 1 Current Liabilities

Current Liabilities = $1010,000

Current Assets = $2,222,000 (2.2* $1,010,000) is Correct

2.

Debt Equity Ratio = Total Debt / Equity

1.5 = Total Debt / Equity

Total Debt = 1.5 Equity

Total Assets = Total Debt + Total Equity

$3,600,000 = 1.5 Equity + Equity

$3,600,000 = 2.5 Equity

Equity = $3,600,000 / 2.5

Equity = $1,440,000

Debt = $2,160,000

3.

Long Term Assets = Total Assets – Current Assets

= $3,600,000 – 2,222,000

Long Term Assets = $1,378,000

4.

Long term Liabilities = Total Liabilities – Current Liabilities

= $2,160,000 - $1,010,000

Long term Liabilities = $1,150,000

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