Question

INTERMEDIATE (Questions 13-22) LO 1 13. Market Values and Book Values Klingon Widgets, Inc., purchased new cloaking machinery three years ago for $6 million. The machinery can be sold to the Romulans today for $4.6 million. Klingon's current balance sheet shows net fixed assets of $3.15 million, current liabilities of $830,000, and net working capital of $210,000. If all the current accounts were liquidated today, the company would receive $950,000 in cash. What is the book value of Klingon's total assets today? What is the sum of the market value of NWC and the market value of fixed assets?

Answer 1

Given,

Net working capital :$210000

Current liabilities:$830000

Net fixed assets:$3150000

Market value of fixed assets:$4600000

Market value of current assets:$950000

Calculation of the Book value of Klingon total assets today

Formula:

Book value of Total assets

=Net fixed assets + Book Value of current assets

=$3150000+$1040000

=$4190000

Working Notes:

a) Book value of current assets

=Net Working Capital + current liabilities

=$210000+$830000

=$1040000

2)Calculation of the sum of the market value of NWC and the market value of fixed assets

Here,

Market value of fixed assets is $4600000

Sum of market value of NWC and market value of fixed assets

=$120000+$4600000

=$4720000

Working note:

a) Market value of NWC

=Market value of current assets - current liabilities

=$950000 - $830000

=$120000

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