At the end of the year just completed,Orem Company's total current liabilities were $75,000,and its total long-term liabilities were $225,000.Working capital at year-end was $100,000.If the company's debt-to-equity ratio is 0.30 to 1,total long-term assets must equal which of the following?
A) $1,000,000.
B) $1,125,000.
C) $1,225,000.
D) $1,300,000.

Question

Quizplus · Accepted Answer

To calculate the total long-term assets, we first need to find the total equity of the company. We can find this by subtracting the total liabilities from the working capital:

Total equity = Working capital - Total liabilities
Total equity = $100,000 - ($75,000 + $225,000)
Total equity = $100,000 - $300,000
Total equity = -$200,000

Since the equity is negative, the company must have a total asset of at least $200,000. To find the total long-term assets, we can use the debt-to-equity ratio:

Debt-to-equity ratio = Total long-term liabilities / Total equity
0.30 = $225,000 / (-$200,000)
-$200,000 x 0.30 = $225,000
-$60,000 = $225,000 - Total long-term assets
Total long-term assets = $225,000 - (-$60,000)
Total long-term assets = $225,000 + $60,000
Total long-term assets = $285,000

Finally, to find the total assets, we can use the working capital formula:

Total assets = Working capital + Total liabilities
Total assets = $100,000 + ($75,000 + $225,000)
Total assets = $400,000

Therefore, the total long-term assets are $285,000, and the best choice is B.

At the End of the Year Just Completed,Orem Company's Total