Question

Wims, inc., has current assets of $5,000, net fixed assets of $23,000, current liabilities of $3,500, and long-term debt of $7,900.

a. What is the value of the shareholders' equity account for this firm? (do not round intermediate calculations.)
b. How much is net working capital? (do not round intermediate calculations.)

Answer 1

a. The value of shareholder's equity account for this firm is $16,600.

b. The net working capital for Wims Inc. is $1,500.

a. We start off by looking at the Accounting Identity:

`Total Assets = Total Liabilities + Shareholders' Equity`

Since

`Total Assets = Current Assets + Net Fixed Assets`

and

`Total Liabilities = Current Liabilities + Long-term debt`

We can rewrite this accounting identity as follows:

`Current Assets + Net Fixed Assets = Current Liabilities + Long-term debt + Shareholders' Equity` ----- (1)

Plugging in the values from the question in (1) above we get,

`5000 +23000 = 3500 + 7900 + Share holders' equity`

`28000 = 11400 + Share holders' equity`

`28000 - 11400 = Share holders' equity`

`Share holders' equity = $16,600`

b. The formula for Net Working Capital is:

`Net Working Capital = Current Assets - Current Liabilities`

`Net Working Capital = 5000 - 3500`

`Net Working Capital = $1500`