Question

The current asset section of Guardian Consultant's balance sheet consists of cash, accounts receivable, and prepaid expenses. The 2018 balance sheet reported the following: cash, $1,300,000; prepaid expenses, $360,000; long-term assets, $2,400,000; and shareholders' equity, $2,500,000. The current ratio at the end of the year was 2.0 and the debt to equity ratio was 1.4.

Determine the following 2018 amounts and ratios:
a)Current liabilities
b)Long-term liabilities
c)Accounts receivable
d)The acid-test ratio

Answer 1

To determine the 2018 amounts and ratios for Guardian Consultant's balance sheet, we need to calculate the missing values based on the given information. The current liabilities are $830,000, the long-term liabilities are $2,670,000, there are no accounts receivable, and the acid-test ratio cannot be calculated.

Step-by-step explanation:

To determine the 2018 amounts and ratios, we need to calculate the missing values based on the given information. Let's begin:

a) To find the current liabilities, we can use the current ratio formula: Current Ratio = Current Assets / Current Liabilities. Given that the current ratio is 2 and the current assets are $1,660,000, we can calculate the current liabilities by dividing the current assets by the current ratio: Current Liabilities = Current Assets / Current Ratio = $1,660,000 / 2 = $830,000.

b) To find the long-term liabilities, we can use the debt to equity ratio formula: Debt to Equity Ratio = Total Liabilities / Shareholders' Equity. Given that the debt to equity ratio is 1.4 and the shareholders' equity is $2,500,000, we can calculate the total liabilities by multiplying the shareholders' equity by the debt to equity ratio: Total Liabilities = Shareholders' Equity * Debt to Equity Ratio = $2,500,000 * 1.4 = $3,500,000. Since we already know the current liabilities ($830,000), we can calculate the long-term liabilities by subtracting the current liabilities from the total liabilities: Long-term Liabilities = Total Liabilities - Current Liabilities = $3,500,000 - $830,000 = $2,670,000.

c) To find the accounts receivable, we need to subtract the other current assets from the total current assets: Accounts Receivable = Current Assets - Cash - Prepaid Expenses = $1,660,000 - $1,300,000 - $360,000 = $0.

d) Finally, to find the acid-test ratio, we need to calculate the quick assets, which is the current assets minus the inventory. Since the information about inventory is not provided, we cannot calculate the acid-test ratio.