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Homework answers / question archive / The current asset section of Guardian Consultant's balance sheet consists of cash, accounts receivable, and prepaid expenses

The current asset section of Guardian Consultant's balance sheet consists of cash, accounts receivable, and prepaid expenses

Finance

The current asset section of Guardian Consultant's balance sheet consists of cash, accounts receivable, and prepaid expenses. The 2021 balance sheet reported the following: cash, $1,380,000; prepaid expenses, $440,000; long-term assets, $3,200,000; and shareholders' equity, $3,300,000. The current ratio at the end of the year was 2.0 and the debt to equity ratio was 1.8.

 

Required:

Determine the following 2021 amounts and ratios: (Round your "The acid-test ratio" answer to 1 decimal place.)

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Given,

Current Ratio = 2.0

Total Assets = Cash + Prepaid Expenses + Accounts Receivables+ Long term Assets = $1,380,000+$440,000+ Accounts Receivables+$3,200,000

Total Assets = $5,020,000 + Accounts Receivables

 

Debt to Equity Ratio = 1.8

Debt to Equity Ratio = Total Debt / Total Equity

1.8 = Total Debt / $3,300,000

Total Debt = 1.8*$3,300,000

Total Debt = $5,940,000

 

Total Assets = Total Debt + Shareholders Equity

$5,020,000 + Accounts Receivables = $5,940,000 + $3,300,000

Accounts Receivables = $9,240,000 - $5,020,000

Accounts Receivables = $4,220,000

 

Total Assets = $5,020,000 + $4,220,000 = $9,240,000

Current Assets = Total Assets - Long term Assets

= $9,240,000 - $3,200,000

Current Assets = $6,040,000

 

Current Ratio = Current Assets/Current Liabilities

2.0 = $6,040,000/Current Liabilities

Current Liabilities = $6,040,000/2.0

Current Liabilities = $3,020,000

 

Total Debt = Current Liabilities + Long term Liabilities

$5,940,000 = $3,020,000 + Long term Liabilities

Long term Liabilities = $5,940,000 - $3,020,000

Long term Liabilities = $2,920,000

 

 

Acid Test Ratio = Liquid Assets/Current Liabilities

= ($1,380,000+$4,220,000)/$3,020,000

= $5,600,000/$3,020,000

Acid Test Ratio = 1.9

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