Question

multiaple choice

use the following information to answer this question:

temporary current assets $95000,

permanent current assets 90000

fixed assets 400000,

total assets $585000,

which of the following liability structure would be used in the moderate approach?

a) account payable $5000

notes payable 5000

longterm debt -0-

equity 575000

b) account payable $5000

notes payable 5000

longterm debt 500000

equity 75000

c) account payable $20000

notes payable 75000

longterm debt 410000

equity 80000

d) account payable $20000

notes payable 100000

longterm debt 405000

equity 60000

Answer 1

Answer C

Moderate approach : It follows matching principal which means non current assets should be financed by long term financing and current assets by short term financing.Therefore non current assets and permanent working capital which amounts to $400000 + $90000 = $490000 should be financed by long term financing i.e long term debt and equity which is $410000 + $80000 = $490000 and temporary working capital i.e $95000 should be financed by short term financing i.e Accounts payable and Notes payable i.e $20000 + $75000 = $95000.