Question

Exercise 3-18 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 inventories. The December 31, 2018, balance sheet revealed the following Inventories Total assets $1,020,0ee $3,000,000 Current ratio 2.40 Acid-test ratio 1,20 Debt to equity ratio 1.5 Required: Determine the following 2018 balance sheet items: 1 Current assets 2 Shareholders' equity 3, ILong-term assets 4 Long-term liabilities

Answer 1

1 Current Ratio Current Assets/ Current Liabilities 2.4 Current Assets/ Current Liabilities Current Assets 2.4 x current liabilities Acid Test Ratio (Current Assets Inventory)/ current liabilities 1.20 (2.4 x current liabilities Inventory)/current liabilities 1.20 x Current liabilities = 2.4 x current liabilities - $1020000 current liabilities x (2.4-1.20) $1020000 current liabilities- $1020000/1.20 current liabilities $850000 Current Assets 2.4 x $850000 Current Assets $2040000 2 Assets Total Liabilities Total Shareholders Equity Total Liabilities $3000000 Total Shareholders Equity Debt to Equity Ratio Total Liabilities / Total Shareholders' Equity 1.5 Total Liabilities/Total Shareholders' Equity 1.5 x Total Shareholders' Equity $3000000 Total Shareholders Equity Total Shareholders Equity x (1.5 +1) $3000000 Total Shareholders Equity $3000000/2.5 Total Shareholders Equity $1200000 = = 3 Total Assets Current Assets + Long Term Assets Long Term Assets Total Assets Current Assets Long Term Assets $30000000 $2040000 Long Term Assets $960000 4 Total Liabilities Current Liabilities+ Long Term Liabilities $3000000 Total Shareholders Equity $85000+Long Term Liabilities $3000000 $1200000 $85000 Long Term Liabilities Long Term Liabilities $95000