Balance Sheet Hair Etc.has total assets of $15 million.Twenty percent of these assets are financed with debt of which $1 million is current liabilities.The firm has no preferred stock but the balance in common stock and paid-in surplus is $8 million.Using this information what is the balance for long-term debt and retained earnings on Hair Etc.'s balance sheet?

Question

Quizplus · Accepted Answer

Total debt is 20% of $15 million, which is $3 million. With $1 million in current liabilities, long-term debt is $2 million. Common stock and paid-in surplus is $8 million, so retained earnings is $15 million - $3 million (total debt) - $8 million (common stock and paid-in surplus) = $4 million.