Question

Klingon Widgets, Inc., purchased new cloaking machinery three years ago for $4.4 million. The machinery can be sold to the Romulans today for $6.6 million. Klingon's current balance sheet shows net fixed assets of $3.2 milion, current liabilities of $750,000, and net working capital of $134,000. If all the current accounts were liquidated today, the company would receive $865,000 cash. What is the book value of Klingon's total assets today? (Enter your answer in dollars, not millions of dollars,e.g 1,234,567. Do not round intermediate calculations and round your answer to the nearest whole number, e.g., 32.) Book value of total assets What is the sum of the market value of NWC and market value of fixed assets? (Enter your answer in dollars, not millions of dollars, e.g., 1,234,567. Do not round intermediate calculations and round your answer to the nearest whole number, e.g., 32.) Sum

Answer 1

Book value of total assets: $ 4,084,000

Book value of assets will include net fixed assets of $ 3.2 million and book value of current assets, which can be calculated by adding current liabilities to Net working capital. Here please note that the cloaking machinery is already included (net of depreciation) in the net fixed assets figure. Also whenever we take book value of fixed assets, it has to be taken net of depreciation.

Current assets = Net working capital + Current liabilities

= $ 134,000 + $ 750,000

= $ 884,000

So, the book value of total assets is:

Total book value of assets = Net fixed assets + Current assets

= $ 3,200,000 + $ 884,000

= $ 4,084,000

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Sum of market values of NWC and fixed assets : $ 6,715,000

The market value of fixed assets is given as $ 6.6 million and that of current assets as $ 865,000 (the question says 'all current accounts'. I am assuming it means all current asset accounts)

Market value of NWC = market value of current assets - current liabilities

= $ 865,000 - $ 750,000

= $ 115,000

So, sum of market values of NWC and fixed assets = $ 115,000 + $ 6,600,000 = $ 6,715,000