Final answer:
To find long-term liabilities, calculate current liabilities using the current and quick ratios, determine total liabilities with the debt-to-equity ratio, and subtract current liabilities from total liabilities. Set up a T-account balance sheet to balance assets and liabilities, reflecting the bank's net worth.
Step-by-step explanation:
The student's question involves calculating long-term liabilities using available financial ratios and figures. We have the values for total assets, inventories, current ratio, quick ratio, and the debt to equity ratio. To find long-term liabilities, we must first determine current liabilities using the current and quick ratios, then establish total liabilities through the debt-to-equity ratio, and finally derive long-term liabilities by subtracting current liabilities from total liabilities.
Using the current ratio (Current Assets / Current Liabilities = 2.25), we find that Current Assets = Current Liabilities * 2.25. Since Quick Assets are Current Assets minus Inventories (Quick Assets = Current Assets - Inventories), and given the quick ratio (Quick Assets / Current Liabilities = 1.20), we estimate Current Liabilities. From there, the total liabilities can be ascertained with the help of the debt-to-equity ratio (Total Liabilities = Equity * Debt to Equity Ratio), knowing that Equity is the difference between Total Assets and Total Liabilities. Finally, Long-Term Liabilities are computed by subtracting Current Liabilities from Total Liabilities.
Setting up a balance sheet for a bank in a T-account format involves listing the bank's assets on the left and liabilities (plus bank capital, which is the net worth) on the right. An example can be given for clarity:
- Assets: Reserves + Government Bonds + Loans
- Liabilities: Deposits + Net Worth
Net Worth is calculated as Total Assets minus Total Liabilities. Assets and liabilities should balance out, showcasing the asset-liability time mismatch, which describes the difference in liquidity and repayment terms between the bank's assets and liabilities.