Balance Sheet The assets of Dallas & Associates consist entirely of current asse

Question

Balance Sheet The assets of Dallas & Associates consist entirely of current assets and net plant and equipment. The firm has total assets of $2.5 million and net plant and equipment equals $2 million. It has long-term debt of $750,000, and total common equity of $1.5 million. The firm only finances with debt and common equity, so it has no preferred stock on its balance sheet.

a. What is the amount of total liabilities and equity that appears on the firm's balance sheet?

b. What is the balance of current assets on the firm's balance sheet?

c. What is the balance of current liabilities on the firm's balance sheet?

d. What is the firm's net working capital?

Explanation / Answer

In a balance sheet, Total Assets will be equal to Total Liabilities

Total Asset consists of Current Assets and Net Plant and Equipment

$2.5 million = Current Assets + $2 million

Current Asset = $0.5 million

Total Liabilities = Common Equity + Long Term debt + Current Liabilities

Note - Total Liabilities has to be equal to Total Assets

Therefore Total Liabilities = $2.5 million

$2.5 million = $1.5 million + 0.75 million + Current Liabilities

$2.5 million = $2.25 million + Current Liabilities

Current Liabilities = $2.5 - $2.25

Current Liabilities =$0.25 million

Note - In the question it is stated that firm only finances with debt and common equity, so it has no preferred stock on its balance sheet therefore we got Equity ,Non Current Liabilities so the balancing part would be Current Liabilities.

a. Total Liabilites and equity = Common Equity + Long Term debt + Current Liabilities

= $1.5 million + 0.75 million + $0.25

= $2.5 million

b. Current Asset = $0.5 million

c. Current Liabilities = $0.25 million

d. Net Working Capital = Current Asset - Current Liabilities

= $0.5 million - $0.25 million

= $0.25 million

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