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The current asset section of the Tire company's balance sheet consists of cash, marketable securities, accoubts receivable, and inventories. The december 31, 2009 balance sheet revealed the following: Inventories = 840,000 Total assets= 2,800,000 Current ratio= 2.25 Acid-test ratio= 1.2 Debt to equity ratio= 1.8 Determine the following Current assets Shareholders equity Noncurrent assets Longterm liabilities. I have tried several times and have not gotten the correct answer. Much help would be appreciated thanks.
You actually need a lot algebra for these: Current ratio =current assets/current liabilities Acid test ratio=(current assets-inventory)/current liabilities Debt to equity ratio=Total Liabilties/shareholders equity So let's replace what you know: Current ratio = 2.25 =CA/CL Acid test = 1.2 =(CA-840,000)/CL (I'm abbreviating) Debt to equity = 1.8 = LL/SE We also know that CL + LL + SE = 2,800,000 (since assets=liabilties + equity) We can solve for Wyoming with the current ratio formula by taking both sides times CL, therefore CA=2.25xCL Substitute that into the acid test ratio to solve for CA: (2.25CL-840,000)/CL=1.2 (take both sides times CL) 2.25CL-840,000=1.2CL (add the CLs) -840,000=-1.05CL (divide both sides by -1.05) 800,000=CL We can now replace CL in the current ratio: 2.25=CA/800,000 (take both sides times 800,000) 1,800,000=CA We can solve for LL with the debt/equity ratio: LL=1.8SE In the accounting formula we substitute CL with what we've figured and LL 800,000 + 1.8 SE + SE =2,800,000 Solve from there. Once you figure SE you can figure LL.