Question

The assets of Dallas & Associates consist entirely of current assets and net plant and equipment, and the firm has no excess cash. The firm has total assets of $3 million and net plant and equipment equals $2.7 million. It has notes payable of $145,000, long-term debt of $752,000, and total common equity of $1.45 million. The firm does have accounts payable and accruals on its balance sheet. The firm only finances with debt and common equity, so it has no preferred stock on its balance sheet.

Write out your answers completely. For example, 25 million should be entered as 25,000,000. Negative values, if any, should be indicated by a minus sign. Round your answers to the nearest dollar, if necessary.

1. What is the company's total debt?
     $   
2. 
   
3. What is the amount of total liabilities and equity that appears on the firm's balance sheet?
   $   
4. 
   
5. What is the balance of current assets on the firm's balance sheet?
   $   
6. 
   
7. What is the balance of current liabilities on the firm's balance sheet?
   $   
8. 
   
9. What is the amount of accounts payable and accruals on its balance sheet? (Hint: Consider this as a single line item on the firm's balance sheet.)
   $   
10. 
    
11. What is the firm's net working capital? If your answer is zero, enter "0". Negative value, if any, should be indicated by a minus sign.
    $   
12. 
    
13. What is the firm's net operating working capital?
    $   
14. 
    
15. What is the monetary difference between your answers to part f and g?
    $   
    
    What does this difference indicate?

Answer 1

Answer a.

Total Debt = Notes Payable + Long-term Debt
Total Debt = $145,000 + $752,000
Total Debt = $897,000

Answer b.

Total Liabilities and Equity = Total Assets
Total Liabilities and Equity = $3,000,000

Answer c.

Current Assets = Total Assets - Net Plant and Equipment
Current Assets = $3,000,000 - $2,700,000
Current Assets = $300,000

Answer d.

Total Liabilities = Total Assets - Total Common Equity
Total Liabilities = $3,000,000 - $1,450,000
Total Liabilities = $1,550,000

Current Liabilities = Total Liabilities - Long-term Debt
Current Liabilities = $1,550,000 - $752,000
Current Liabilities = $798,000

Answer e.

Accounts Payable and Accruals = Current Liabilities - Notes Payable
Accounts Payable and Accruals = $798,000 - $145,000
Accounts Payable and Accruals = $653,000

Answer f.

Net Working Capital = Current Assets - Current Liabilities
Net Working Capital = $300,000 - $798,000
Net Working Capital = -$498,000

Answer g.

Net Operating Working Capital = Net Working Capital + Notes Payable
Net Operating Working Capital = -$498,000 + $145,000
Net Operating Working Capital = -$353,000

Answer h.

The difference indicates notes payable balance.

Monetary Difference = (-$353,000) - (-$498,000)
Monetary Difference = $145,000