The current asset section of Guardian Consultant\'s balance sheet consists of ca

Question

The current asset section of Guardian Consultant's balance sheet consists of cash, accounts receivable, and prepaid expenses. The 2011 balance sheet reported the following: cash, $1,300,000; prepaid expenses, $360,000; noncurrent assets, $2,400,000; and shareholders' equity, $2,500,000. The current ratio at the end of the year was 2.0 and the debt to equity ratio was 1.4

Determine the following 2011 amounts and ratios:
1.Current liabilities.
2.Long-term liabilities.
3.Accounts receivable.
4.The acid-test ratio.

Explanation / Answer

Debt to Equity ratio = 1.4    Debt/2,500,000=1.4  therefore Debt = 3,500,000 ( 2,500,000 x 1.4)

So, Stockholders equity 2,500,000 plus Debt 3,500,000 is your TOTAL ASSETS= 6,000,000

based on acctg equation Assets= Liab + Stockholder   as Eqty

Total Assets - Noncurrent Assets= Current assets   6,000,000 - 2,400,000 = 3,600,000

Current Assets= Cash + Accounts Receivable + Prepaid Expenses

3,600,000 = 1,300,000  + Accounts Receivable + 360,000

Therefore Accts Rec = 1,940,000   (ANSWER NO.3)

Current Ratio = Current Assets/Current Liabilities

2.0 = 3,600,000/Curr Liab  = 1,800,000 ( 3,600,000 divided by 2.0)  ANSWER No.1

As per above, TOTAL DEBT = 3,500,000 therefore

Long Term Liabilities = Total Debt - Current Liabilities

L/T Debt = 3,500,000 - 1,800,000 = 1,700,000 ANSWER No.2

 

Acid Test Ratio = Cash + Accts Rec + Marketable Sec/Current Liab

Acid Test = 1,300,000 + 1,940,000 + 0 /1,800,000  = 1.8 ANSWER no.4

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