At the end of fiscal year 2021, company A discloses the following balance sheet:AssetsNon-cash current assets $1,200,000Non-current assets $3,000,000Long-term equity Investments $2,000,000Total $6,200,000Equity and LiabilitiesCurrent debt $500,000Other current liabilities $200,000Non-current debt $4,000,000Deferred tax liability $200,000Provisions for bad debt $160,000 Equity $1,140,000Total $6,200,000Company A’s net operating assets and net debt equal Group of answer choicesC. $5,640,000 and $4,500,000, respectivelyA. $3,440,000 and $2,300,000, respectivelyB. $4,200,000 and $4,500,000, respectivelyD. $6,200,000 and $5,060,000, respectively
Question
At the end of fiscal year 2021, company A discloses the following balance sheet:AssetsNon-cash current assets 3,000,000Long-term equity Investments 6,200,000Equity and LiabilitiesCurrent debt 200,000Non-current debt 200,000Provisions for bad debt 1,140,000Total 5,640,000 and 3,440,000 and 4,200,000 and 6,200,000 and $5,060,000, respectively
Solution
To answer this question, we first need to calculate the net operating assets and net debt of Company A.
Net operating assets (NOA) is calculated as the difference between operating assets and operating liabilities. Operating assets are the assets needed to run the daily operations of the business, which include non-cash current assets and non-current assets. Operating liabilities are the liabilities that arise from the daily operations of the business, which include current debt and other current liabilities.
So, NOA = (Non-cash current assets + Non-current assets) - (Current debt + Other current liabilities) NOA = (3,000,000) - (200,000) NOA = $4,200,000
Net debt is calculated as the total debt of the company minus any cash and cash equivalents. In this case, the company does not have any cash or cash equivalents listed, so the net debt is just the total debt, which is the sum of current debt and non-current debt.
So, Net Debt = Current debt + Non-current debt Net Debt = 4,000,000 Net Debt = $4,500,000
So, the correct answer is B. 4,500,000, respectively.
Similar Questions
The balance sheet shows the following accounts and amounts:Inventory, $42,000; Long-term Debt 62,500; Common Stock $30,000; Accounts Payable $22,000; Cash $66,000; Buildings and Equipment $195,000; Short-term Debt $24,000; Accounts Receivable $54,500; Retained Earnings $102,000; Notes Payable (nine month) $27,000; Accumulated Depreciation $90,000.Total current assets on the balance sheet are:
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