Company X finances only with debt and common equity (i.e., no preferred stock),

Question

Company X finances only with debt and common equity (i.e., no preferred stock), and it has accounts payable and accruals. The firm's assets consist entirely of current assets and net plant and equipment. Total assets are $4 million and net plant and equipment is $250,000. It has notes payable of S.5 million, long-term debt of S1 million, and total common equity of S1,750,000. 5. What is company X's Total Debt? 6. What are total liabilities and owners equity that appears on Company X's balance sheet?

Explanation / Answer

Answer 5.

Total Liabilities and Owner’s Equity = Total Assets
Total Liabilities and Owner’s Equity = $4,000,000

Total Liabilities and Owner’s Equity = Total Debt + Total Common Equity
$4,000,000 = Total Debt + $1,750,000
Total Debt = $2,250,000

Answer 6.

Total Liabilities and Owner’s Equity of $4,000,000 would appear on Company X’s balance sheet.

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