The current asset section of Guardian Consultant’s balance sheet consists of cas
ID: 2339254 • Letter: T
Question
The current asset section of Guardian Consultant’s balance sheet consists of cash, accounts receivable, and prepaid expenses. The 2018 balance sheet reported the following: cash, $1,330,000; prepaid expenses, $390,000; noncurrent assets, $2,700,000; and shareholders’ equity, $2,800,000. The current ratio at the end of the year was 2.5 and the debt to equity ratio was 1.3.
Required:
Determine the following 2018 amounts and ratios: (Round your "The acid-test ratio" answer to 1 decimal place.)
Find: current liabilities, long-term liabilities, accounts receivable and the acid-test ratio
Explanation / Answer
debt to equity ratio=debt/equity
Hence debt=1.3equity
=1.3*2,800,000
=$3,640,000
Total assets=debt+equity
=(3,640,000+2,800,000)
=$6,440,000
Total assets=Current assets+NonCurrent assets
Hence Current assets=(6,440,000-2,700,000)
=$3,740,000
Current assets=AR+Cash+Prepaid expenses
Hence AR=(3,740,000-1,330,000-390,000)=$2,020,000
Current ratio=Current assets/Current liabilities
Hence Current liabilities=(3,740,000/2.5)=$1,496,000
Total debt=Current liabilities+long term liabilities
long term liabilities=(3,640,000-1496000)=$2,144,000
Acid test ratio=(Current assets-prepaid expenses)/current liabilities
=($3,740,000-390000)/1496000
=2.2(Approx).
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