Question

Brenda’s Bar and Grill has total assets of $15.0 million, of which $9.0 million are current assets. Cash makes up 10 percent of the current assets and accounts receivable makes up another 40 percent of current assets. Brenda’s gross plant and equipment has a book value of $14.5 million and other long-term assets have a book value of $800,000. What is the balance of inventory and the balance of depreciation on Brenda's Bar and Grill’s balance sheet?

Answer 1

Solution:

Calculation of balance of Inventory:

As per the information given in the question we have

Current Assets = $ 9.0 million

Cash = 10 % of current assets

Accounts receivable = 40 % of current assets

Thus Balance of Inventory = Total Current Assets – Cash – Accounts receivable

= 100 % of current assets - 10 % of current assets - 40 % of current assets

= 50 % current assets

Thus Inventory Balance = 50 % of $ 9.0 million

= $ 4.5 million

Thus the balance of Inventory on Brenda's Bar and Grill’s balance sheet = $ 4.5 million

Calculation of Balance of Depreciation:

As per the information given in the question we have

Total Assets = $ 15.0 million   ; Current Assets = $ 9.0 million

We know that Total fixed Assets = Total Assets – Current Assets

Thus we have Total fixed Assets = $ 15.0 million - $ 9.0 million

= $ 6.0 million

Further we know that

Total fixed Assets = ( Gross Plant and Equipment – Depreciation ) + Other long term assets

As per the information given in the question we have

Gross Plant and Equipment = $ 14.5 million ; Other long term assets = $ 800,000 = $ 0.8 million ;   Total fixed Assets = $ 6.0 million

Applying the above in formation in the equation for Total Fixed Assets we have

$ 6.0 million = $ 14.5 million – Depreciation + $ 0.8 million

$ 6.0 million = $ 15.3 million – Depreciation

Depreciation = $ 15.3 million - $ 6.0 million

Depreciation = $ 9.3 million

Thus the balance of depreciation on Brenda's Bar and Grill’s balance sheet = $ 9.3 million