Question

Exercise 3-18 (Algo) Calculating ratios; solve for unknowns [LO3-8] 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 Total assets Current ratio Acid-test ratio Debt to equity ratio $1,010,000 $3,600,000 2.20 1.20 1.5 Required: Determine the following 2021 balance sheet items: 1. Current assets 2. Shareholders' equity 3. Long-term assets 4. Long-term liabilities

Answer 1

Current ratio = current assets/current liabilities = 2.20

Current assets = 2.20* current liabilities.... (Equation 1)

Acid test ratio = (current assets - inventory)/current liabilities = 1.20

Put equation 1 value for current assets

(2.20*current liabilities)-1010000 )/current liabilities = 1.2

2.2 * current liabilities -1010000= 1.2*current liabilities

2.2*current liabilities -1.2*current liabilities = 1010000

Current liabilities = 1010000/1= 1010000

Current assets = 2.2*1010000=2222000

Debt to equity ratio = Debt/Equity = 1.5

If Equity is 1, then Debt = 1*1.5= 1.5

Total Assets = Debt+Equity = 2.5

So shareholders Equity = total assets/asset ratio * equity ratio

=3600000/2.5*1

1440000

Long term Assets = total assets - current assets

=3600000-2222000

1378000

Debt = total assets - Equity.=3600000-1440000

2160000

Long term debt = total debt - current liabilities

=2160000-1010000

1150000

Answer

Current assets =2222000

Shareholders Equity = 1440000

Long term Assets = 1378000

Long term debt = 1150000

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