Question

Wims, inc., has current assets of $5,000, net fixed assets of $23,000, current liabilities of $3,500, and long-term debt of $7,900.
a. What is the value of the shareholders' equity account for this firm? (do not round intermediate calculations.)
b. How much is net working capital? (do not round intermediate calculations.)

Answer 1

Answer:

a. The value of shareholder's equity account for this firm is $16,600.

b. The net working capital for Wims Inc. is $1,500.

a. We start off by looking at the Accounting Identity:

$Total Assets = Total Liabilities + Shareholders' Equity$

Since

$Total Assets = Current Assets + Net Fixed Assets$

and

$Total Liabilities = Current Liabilities + Long-term debt$

We can rewrite this accounting identity as follows:

$Current Assets + Net Fixed Assets = Current Liabilities + Long-term debt + Shareholders' Equity$ ----- (1)

Plugging in the values from the question in (1) above we get,

$5000 +23000 = 3500 + 7900 + Share holders' equity$

$28000 = 11400 + Share holders' equity$

$28000 - 11400 = Share holders' equity$

$Share holders' equity = 16,600$

b. The formula for Net Working Capital is:

$Net Working Capital = Current Assets - Current Liabilities$

$Net Working Capital = 5000 - 3500$

$Net Working Capital = 1500$