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 Total assets Current ratio Acid-test ratio Debt to equity ratio $ 910,000 $2,5ee, eee 2.50 1.20 1.5 Required: Determine the following 2021 balance sheet Items: 1. Current assets $ 1,750,000 $ 1.000.000 2. Shareholders' equity 3. Long-term assets 4. Long-term liabilities

Need help with finding long-term assets.Thank you.

Answer 1

We have been given with 3 ratios.

Step 1: First by using current ratio will calculate current liabilities.

Formula for current ratio is given below.

Current ratio		Current Assets
	Current liabilities

Current ratio = 2.5 as per the question.

Current liabilities = Current Assets / 2.5

Current Liabilities	Current Assets
2.5

Current Liabilities = 700,000 (1,750,000 / 2.5).

Step2 : Let arrive long term assets by using Acid test ratio.

Formula for Acid test ratio given below.

Acid test ratio		Cash& cash equivlents+marketable securities+Accounts receivable
	Current Liabilities

Acid test ratio = 1.2 as per question.

Cash & cash equivalents+marketale securities+Accounts receivable = 840,000 (700,000*1.2 = current liabilities *1.2)

So Total current assets = 1,750,000 (840,000 cash & cash equivalents, marketable securities & accounts receivable+ 910,000 inventory)

Long term Assets = Total Assets - Current assets (2,500,000-1,750,000= 750,000.

So long term assets is 750,000

Note : Assuming marketable securities are current assets.

Step3 : Calculation of Long term Liabilities.

Debt to equity ratio is 1.5 given in question.

Debt to equity ratio	Total outside liability
Sahre holders equity Equity

Total outside liability =1,500,000 (1,000,000*1.5).

Long term Liability = 800,000 (1,500,000 total outside liability-700,000Current liability).