CORP FIN FINAL PT B A firm’s balance sheet contains $3,200 of cash, $20,000 of f
ID: 1174625 • Letter: C
Question
CORP FIN FINAL PT B
A firm’s balance sheet contains $3,200 of cash, $20,000 of fixed assets, $13,800 of accounts receivable, $7,200 of accounts payable, $5,000 of inventory, and $11,000 on a revolving line of credit. Assuming that list contains all of the company’s assets and liabilities:
11. How much are current assets? (Show calculation)
12. What is the company’s quick ratio? (Show calculation)
13. What is the company’s book value? (Show calculation)
A company began the year with retained earnings of $14,000. Net income for the year was $10,250, it repaid $4,500 of its line of credit balance, and it paid dividends to its shareholders of $11,000. What was the company’s retained earnings at the end of the year? (Show calculation)
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Explanation / Answer
11.
Current assets = Cash + Accounts receivable + Inventory
= 3,200 + 13,800 + 5,000
= $22,000
12.
Quick assets = Cash + Accounts receivable
= 3,200 + 13,800
= $17,000
Current liabilities = Accounts payable + Revolving line of credit
= 7,200 + 11,000
= $18,200
Quick ratio = Quick assets/Current liabilities
= 17,000/18,200
= 0.93:1
13.
Assets of the company = Current assets + Fixed assets
= 22,000 + 20,000
= $42,000
Book value of company = Assets - Liabilities
= 42,000 - 18,200
= $23,800
Calculation of retained earnings at the end of the year
Retained earnings at the end of the year = Retained earnings at the begining of the year + Net income - Dividend paid
= 14,000 + 10,250 - 11,000
= $13,250
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