Question

NNR Inc.'s balance sheet showed total current assets of $1,875,000 plus $4,225,000 of net fixed assets. All of these assets were required in operations. The firm's current liabilities consisted of $475,000 of accounts payable, $375,000 of 6% short-term notes payable to the bank, and $150,000 of accrued wages and taxes. Its remaining capital consisted of long-term debt and common equity. What was NNR's total investor-provided operating capital?

Answer 1

Answer:

$5,475,000

Explanation:

The computation of the total investor provided operating capital is shown below:

Total investor provided operating capital = Long term Debt & Equity + short term note payable

where,

Long term debt & equity = Total assets - current liabilities

where,

Total assets = Current assets + net fixed assets

= $1,875,000 + $4,225,000

= $6,100,000

And, the current liabilities = Account payable + short term note payable + accrued wages and taxes

= $475,000 + $375,000 + $150,000

= $1,000,000

So, the long term debt & equity is

= $6,100,000 - $1,000,000

= $5,100,000

Now the total investor-provided operating capital is

= $5,100,000 + $375,000

= $5,475,000

We simply applied the above formula