Question

The Klingon Corporation has net fixed assets with a book value of $700 and an appraised market value of about $1,000. Net working capital is $400 on the books, but approximately $600 would be realized if all the current accounts were liquidated. Klingon has $500 in long-term debt, both book value and market value. What is the book value of equity? What is the market value?

Answer 1

Answer:

Equity using book value=$600

Equity using market value=$1,100

Explanation:

The book value of the Equity shall be determined as follows:

Equity=Total Assets-Total liabilities

          =Current assets+Non-current assets-Current liabilities-Non-current liabilities

In the given question

Non-current assets=$700

Current assets-Current liabilities=Net working capital=$400

Non-current liabilities=Long term debt=$500

Equity using book value=$700+$400-$500=$600

The market value of the Equity shall be determined as follows:

Equity=Total Assets-Total liabilities

          =Current assets+Non-current assets-Current liabilities-Non-current liabilities

In the given question

Non-current assets market value=$1,000

Current assets-Current liabilities=Net working capital market value=$600

Non-current liabilities=Long term debt=$500

Equity using market value=$1,000+$600-$500=$1,100