In 9. 3-1 BALANCE SHEET The assets of Dallas & Associates consist e.pdf

In 9. 3-1 BALANCE SHEET The assets of Dallas & Associates consist entirely of current assets
and net plant and equipment. The firm has total assets of $2.5 million and net plant and
equipment equals $2 million. It has notes payable of $150,000, long-term debt of $750,000, and
total common equity of S1.5 million. The firm does have accounts payable and accruals on its
balance sheet. The finm only finances with debt and common equity, so it has no preferred stock
on its balance sheet. a. What is the company\'s total debt? b. What is the amount of total
liabilities and equity that appears on the firm\'s balance sheet? c. What is the balance of current
assets on the firm\'s balance sheet? d. What is the balance of current liabilities on the firm\'s
balance sheet? e. What is the amount of accounts payable and accruals on its balance sheet?
(Hint: Consider this as a single line item on the firm\'s balance sheet.) f. What is the firm\'s net
working capital? g. What is the firm\'s net operating working capital? h. What is the explanation
for the difference in your answers to parts f and g?
Solution
(a) Total Assets = $ 2.5 million, The firm\'s total assets are entirely composed of current assets
and net plant and equipment.
Net Plant and Equipment = $ 2 million and Current Assets = Total Assets - Net Plant and
Equipment = 2.5 - 2 = $ 0.5 million
Notes Payable = $ 150000 and Long-Term Debt = $ 750000
Total Common Equity = $ 1.5 million
Owner\'s Equity + Liabilities = Notes Payable + Long-Term Debt + Accruals + Accounts
Payable + Total Common Equity = Total Assets = $ 2.5 million
0.15 + 0.75 + Accounts Payable + Accruals + 1.5 = 2.5
Accounts Payable + Accruals = $ 0.1 million
Total Debt includes long-term capital financing debt and short-term interest bearing debt only.
Accounts Payable and Accruals do not form a part of a firm\'s total debt.
Hence, total debt = Notes Payable + Long-Term Debt = 150000 + 750000 = $ 900000
(b) Total Liabilities = Accounts Payable + Accruals + Long-Term Debt + Notes Payable = 0.1 +
0.75 + 0.15 = $ 1 million
Owner\'s Equity = Total Assets - Total Liabilities = 2.5 - 1 = $ 1.5 million
(c) Current Assets = Total Assets - Net Plant and Equipment = 2.5 - 2 = $ 0.5 million
(d) Current Laibility = Accruals + Accounts Payable = $ 0.1 million
NOTE: The current portion of notes payable(amount due within one year or accounting period)
is treated as current liability and the remaining portion is treated as non-current liability. As the
notes payable portion does not mention the amount due within a year, the entire value of notes
payable is treated as non-current laibility.
NOTE: Please raise separate queries for solutions to the remaining sub-parts..

1. In 9. 3-1 BALANCE SHEET The assets of Dallas & Associates consist entirely of current assets
and net plant and equipment. The firm has total assets of $2.5 million and net plant and
equipment equals $2 million. It has notes payable of $150,000, long-term debt of $750,000, and
total common equity of S1.5 million. The firm does have accounts payable and accruals on its
balance sheet. The finm only finances with debt and common equity, so it has no preferred stock
on its balance sheet. a. What is the company\'s total debt? b. What is the amount of total
liabilities and equity that appears on the firm\'s balance sheet? c. What is the balance of current
assets on the firm\'s balance sheet? d. What is the balance of current liabilities on the firm\'s
balance sheet? e. What is the amount of accounts payable and accruals on its balance sheet?
(Hint: Consider this as a single line item on the firm\'s balance sheet.) f. What is the firm\'s net
working capital? g. What is the firm\'s net operating working capital? h. What is the explanation
for the difference in your answers to parts f and g?

Solution

(a) Total Assets = $ 2.5 million, The firm\'s total assets are entirely composed of current assets
and net plant and equipment.
Net Plant and Equipment = $ 2 million and Current Assets = Total Assets - Net Plant and
Equipment = 2.5 - 2 = $ 0.5 million
Notes Payable = $ 150000 and Long-Term Debt = $ 750000
Total Common Equity = $ 1.5 million
Owner\'s Equity + Liabilities = Notes Payable + Long-Term Debt + Accruals + Accounts
Payable + Total Common Equity = Total Assets = $ 2.5 million
0.15 + 0.75 + Accounts Payable + Accruals + 1.5 = 2.5
Accounts Payable + Accruals = $ 0.1 million
Total Debt includes long-term capital financing debt and short-term interest bearing debt only.
Accounts Payable and Accruals do not form a part of a firm\'s total debt.
Hence, total debt = Notes Payable + Long-Term Debt = 150000 + 750000 = $ 900000
(b) Total Liabilities = Accounts Payable + Accruals + Long-Term Debt + Notes Payable = 0.1 +
0.75 + 0.15 = $ 1 million
Owner\'s Equity = Total Assets - Total Liabilities = 2.5 - 1 = $ 1.5 million
(c) Current Assets = Total Assets - Net Plant and Equipment = 2.5 - 2 = $ 0.5 million
(d) Current Laibility = Accruals + Accounts Payable = $ 0.1 million
NOTE: The current portion of notes payable(amount due within one year or accounting period)
is treated as current liability and the remaining portion is treated as non-current liability. As the

2. notes payable portion does not mention the amount due within a year, the entire value of notes
payable is treated as non-current laibility.
NOTE: Please raise separate queries for solutions to the remaining sub-parts.