Asked by Harish Ravalla on Jun 28, 2024
Verified
Orem Corporation's current liabilities are $254,840, its long-term liabilities are $1,327,560, and its working capital is $356,800. If the corporation's debt-to-equity ratio is 0.46, total long-term assets must equal:
A) $3,440,000
B) $4,665,600
C) $4,410,760
D) $3,856,760
Debt-To-Equity Ratio
A metric that shows the balance between the amount of a company's assets financed by owners' equity and that financed by debt.
Working Capital
Working capital represents a company's operating liquidity and is calculated as current assets minus current liabilities.
Long-Term Assets
Assets that a company plans to hold for more than one fiscal year, such as buildings, land, and equipment.
- Examine the impact of different transactions on financial indicators including the current ratio, acid-test ratio, and the debt-to-equity ratio.
- Compute the operating cycle of a company and assess its significance in financial analysis.
Verified Answer
Debt-to-equity ratio = Total liabilities / Total equity
0.46 = (254,840 + 1,327,560) / Total equity
Total equity = 2,175,400
We can then use the formula for total assets to find the total long-term assets:
Total assets = Total liabilities + Total equity
Total assets = 254,840 + 1,327,560 + 2,175,400
Total assets = 3,757,800
Finally, we can use the formula for working capital to find the current assets:
Working capital = Current assets - Current liabilities
356,800 = Current assets - 254,840
Current assets = 611,640
We can now use the formula for total assets again to find the current assets:
Total assets = Current assets + Total long-term assets
3,757,800 = 611,640 + Total long-term assets
Total long-term assets = 4,146,160
Therefore, the correct answer is C: $4,410,760.
Learning Objectives
- Examine the impact of different transactions on financial indicators including the current ratio, acid-test ratio, and the debt-to-equity ratio.
- Compute the operating cycle of a company and assess its significance in financial analysis.
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