ACC305_Week1_Assignment

ACC305_Week1_Assignment - Week One Assignment E3-14 The...

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Week One Assignment E3-14 The current asset section of the Excalibur Tire Company’s balance sheet consists of cash, marketable securities, accounts receivable, and inventories. The December 31, 2006, balance sheet revealed the following: Inventories $ 840,000 Total assets $2,800,000 Current ratio 2.25 Acid-test ratio 1.2 Debt to equity ratio 1.8 Required: Determine the following 2006 balance sheet items: 1. Current assets Current ratio = Current assets ÷ Current liabilities Acid-test ratio = Current assets - Inventories ÷ Current liabilities Current ratio 2.25 - Acid-test ratio -1.20 Inventory ÷ Current liabilities 1.05 If: Inventory ÷ Current liabilities = 1.05 Then: Inventory ÷ 1.05 = Current liabilities So: $840,000 ÷ 1.05 = $800,000 If: Current assets ÷ Current liabilities = 2.25 Then: Current assets = Current liabilities × 2.25 So: Current assets = $800,000 × 2.25 Current assets = $1,800,000 2. Shareholders’ equity Debt to equity ratio = Total liabilities(TL) ÷ Shareholders’ equity(SE) = 1.8 Then: TL = 1.8(SE) Accounting equation is: Total assets(TA) = Total liabilities(TL) + Shareholders' equity(SE) Then: TL = TA – SE And: TA = $2,800,000 So: TL = $2,800,000 – SE
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If: TL = 1.8( SE) And: TL = $2,800,000 – SE Then: 1.8(SE) = $2,800,000 – SE +SE +SE So: 2.8(SE) = $2,800,000 ÷ 2.8 ÷2.8 SE = $1,000,000 Shareholders' equity =
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This note was uploaded on 08/14/2011 for the course ACC 305 taught by Professor B.forde during the Spring '11 term at Ashford University.

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ACC305_Week1_Assignment - Week One Assignment E3-14 The...

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