Question

Problem 2-16 Balance Sheet (LG2-1) Glen’s Tobacco Shop has total assets of $96.4 million. Fifty percent of these assets are financed with debt of which $30.0 million is current liabilities. The firm has no preferred stock but the balance in common stock and paid-in surplus is $20.4 million. What is the balance for long-term debt and retained earnings on Glen’s Tobacco Shop’s balance sheet? (Enter your answers in millions of dollars rounded to 1 decimal place.)

Answer 1

Answer:

The balance for long-term debt and retained earnings on Glen’s Tobacco Shop’s balance sheet is $18.2 million and $27.8 million respectively

Explanation:

The computation is shown below:

Given that

Debt = 50% ×  Total Assets

= 50% × $96.4 million

= $48.20 million

As we know that

Total Debt = Current Liabilities + Long Term Debt

$48.20 million = $ 30.0 million + Long Term Debt

So, the long term debt is $18.2 million

Now,

Total Assets = Total Liabilities + Owner's Equity

where,

Total Assets = Long Term Debt + Current Liabilities + Common Stock and paid-in surplus + Retained Earnings

$96.4 million = $18.2 million + $30.0 million + $20.4 million + retained earnings

So, the retained earnings is $27.8 million