Question

The following December 31, 2021, fiscal year-end account balance information is available for the Stonebridge Corporation: Cash and cash equivalents $ 6,100 Accounts receivable (net) 31,000 Inventory 71,000 Property, plant, and equipment (net) 175,000 Accounts payable 50,000 Salaries payable 22,000 Paid-in capital 155,000 The only asset not listed is short-term investments. The only liabilities not listed are $41,000 notes payable due in two years and related accrued interest of $1,000 due in four months. The current ratio at year-end is 1.5:1. Required: Determine the following at December 31, 2021:

Answer 1

Answer and Explanation:

1. Total current assets

As we know that

Current ratio = Current assets ÷ current liabilities

Current liabilities is

= Accounts payable + Accrued interest + Salaries payable

= $50,000 + $1,000 + $22,000

= $73,000

And,

Current ratio = 1.5:1

So,

Total current assets is

= 1.5 × $73,000

= $109,500

b. Short term investment is

Short term investment = Total current assets - Cash and cash equivalents - Accounts receivables - Inventories

= $109,500 - ($6,100 + $31,000 + $71,000)

= $1,400

c. Now retained earning is

Total assets

= Total current assets + Property, plant and equipment

= $109,500 + $175,000

= $284,500

Total liabilities is

= Current liabilities + Notes payable

= $73,000 + $41,000

= $114,000

Retained earnings is

= Total assets - Total liabilities - Paid in capital

= $284,500 - $114,000 - $155,000

= $15,500