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E3-18 (Page 152)
Determine the following 2011 balance sheet items:
1. Current assets
2. Shareholders’ equity
3. Non-current assets
4. Long-term liabilities
Solution 3-18
1. Acid-test ratio = Quick assets ÷ Current liabilities =1.20
Quick assets = Current assets - Inventories
Quick assets = Current assets - $840,000

Current assets ÷ Current liabilities =2.25
Current assets - $840,000 ÷ Current liabilities =1.20
$840,000 ÷ Current liabilities = 1.05
Current liabilities = $800,000 Current assets ÷ $800,000 = 2.25
Current assets = $1,800,000

2. Debt to equity ratio = Total liabilities ÷ Shareholders’ equity = 1.8
Total liabilities + Shareholders' equity = Total assets
Total liabilities + Shareholders' equity = $2,800,000
Let x equal shareholders' equity
1.8 x + x = $2,800,000 x = $1,000,000 = Shareholders' equity

3. Non-current assets = Total assets - Current assets
Non-current assets = $2,800,000 - 1,800,000 = $1,000,000

4. Long-term liabilities = Total assets - Current liabilities - Shareholders' equity Long-term liabilities = $2,800,000 - 800,000 - 1,000,000 = $1,000,000

E3-20 (Page 152)
Indicate (by letter) whether each of the actions listed below will immediately increase (I), decrease (D), or have no effect (N) on the ratios shown. Assume each ratio is less than 1.0 before the action is taken.
Solution 3-20 Current Acid-test Debt to Action Ratio Ratio Equity Ratio 1. Issuance of long-term bonds I I I 2. Issuance of short-term notes I I I 3. Payment of accounts payable D D D 4. Purchase of inventory on account I D I 5. Purchase of inventory for cash N D N 6. Purchase of equipment with a 4-year note N N I 7. Retirement of bonds D D D 8. Sale of common stock I I D 9. Write-off of obsolete inventory D N I 10. Purchase of short-term investment for cash N N N 11. Decision to refinance on a long-term basis some