7) BALANCE SHEET The assets of Dallas & Associates consist entirely of current a
ID: 2419907 • Letter: 7
Question
7) BALANCE SHEET The assets of Dallas & Associates consist entirely of current assets and net plant and equipment. The firm has total assets of $4 million and net plant and equipment equals $2.75 million. It has notes payable of $300,000, long-term debt of $1,200,000, and total common equity of $2.25 million. The firm does have accounts payable and accruals on its balance sheet. The firm only finances with debt and common equity, so it has no preferred stock on its balance sheet.
What is the firm's net operating working capital?
Explanation / Answer
Solution-
Net operating working capital = Current Assets - (Current Liabilities - Notes payable)
Net operating working capital = $1,250,000 - ($550,000 - $300,000)
Net operating working capital = $1,000,000
Calculation-
Total Assets = Current Assets + Net plant and equipment
$4,000,000 = Current Assets + $2,750,000
Current Assets = $4,000,000 - $2,750,000
Current Assets = $1,250,000
Total Liabilities and Equity = Current Liabilities + Long Term Debt + Total common equity
$4,000,000 = Current Liabilities + $1,200,000 + $2,250,000
$4,000,000 = Current Liabilities + $3,450,000
Current Liabilities = $4,000,000 - $3,450,000
Current Liabilities = $550,000
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