Question

The following balance sheet information (in $ millions) comes from the Annual Report to Shareholders of Hotel California for the 2013 fiscal year. (Certain amounts have been replaced with question marks to test your understanding of balance sheets.) In addition, you’re provided with the following information from an analysis of Hotel California’s financial position at the same date:

Current ratio = 4.78

Acid-test ratio = 0.968

Debt-to-equity ratio = 1.35

Compute the missing amounts (rounded to the nearest $ in millions) in the Hotel California balance sheet. Please show all your work.

Assets Current a5sets Cash and equivalents $347 Accounts and notes receivable ? Inventory Other current non-liquid assets 1027 Total current assets Property and equipment, net $147 Other long term assets Total non-current asssets Total assets 2540 Liabilities and stockholder's equity Liabilities Current liabilities Accounts payable 114 Accrued labilities 259 Other payables and accruals ? Total current liabilities 472 ? Long term debt Deferred taxes liability 79 Other long term liabilities 198 Total long term liabilities Total liabilities ? Shareholders' equity Common stock 1000 Additional paid-in capital Retained earnings 137 172 Treasury stock and other -229 Total shareholders' equity 1080 Total liabilities and shareholders' equity

Answer 1

Explanation

Missing amounts are computed as follows:

Total liabilities & shareholder’s equity is equal to the Total assets of the company. Hence, Total liability & shareholder’s equity is $2,540.

Total liability is computed using the equation given below:

Total liability = Total liability & Equity – Total shareholder’s equity

                       = $2,540 – $1,080

                       = $1,460.

Total long-term liability is computed using the equation given below:

Total long-term liability = Total liability – Total current liability

                                        = $1,460 – $472

                                        = $988.

Long-term debt (LTD) is computed using the equation given below:

LTD = Total long-term liability – Deferred taxes liability – Other long-term liability

         = $988 – $79 – $198

         = $711.

Other payables & accruals is computed using the equation given below:

Other payable & accruals = Total current liability – Accounts payable – Accrued liability

                                          = $472 – $114 – $259

                                         = $99.

Total current assets (TCA) is computed using the equation given below:

TCA = Total current liability × Current ratio

         = $472 × 4.78

         = $2,256

Total Non-current assets are computed using the equation given below:

Total Non-current assets = Total assets – TCA

                                         = $2,540 – $2,256

                                         = $284.

Other long-term assets are computed using the equation given below:

Other long-term assets = Total non-current assets – Property & equipment, net

                                     = $284 – $147

                                     = $137.

Liquid assets = Total current liability × Acid-test ratio

                       = $472 × 0.968

                       = $457.

Accounts & Notes receivable is computed using the equation given below:

Accounts & notes receivable = Liquid assets – Cash & equivalents

                                               = $457 – $347

                                               = $110.

Inventory is computed using the equation given below:

Inventory = Total current assets – Cash & equivalent – Accounts & notes receivables – Other current non-liquid assets

                 = $2,256 – $347 – $110 – $1,027

                 = $772.