Harvey's Hamburger Stand has total assets of $3 million of which $1 million are current assets. Cash makes up 20 percent of the current assets and accounts receivable makes up another 5 percent of current assets. Harvey's gross plant and equipment has a book value of $1.5 million and other long-term assets have a book value of $1 million. Using this information, what is the balance of inventory and the balance of depreciation on Harvey's Hamburger Stand's balance sheet?
A) $250,000, $500,000
B) $250,000, $1 million
C) $750,000, $500,000
D) $750,000, $1 million

Question

Quizplus · Accepted Answer

The balance of inventory can be calculated as follows: Current assets are $1 million, of which 20% is cash ($200,000) and 5% is accounts receivable ($50,000). Therefore, the balance of inventory (the remaining current assets) is $1 million - $200,000 - $50,000 = $750,000. The gross plant and equipment has a book value of $1.5 million, and other long-term assets have a book value of $1 million, making total long-term assets $2.5 million. Since total assets are $3 million, and $1 million are current assets, the difference ($1.5 million) is the net book value of plant and equipment. Given the gross plant and equipment is $1.5 million, and the net book value is the same, it implies there is no accumulated depreciation accounted for in the calculation provided, which seems to be an oversight in the explanation process. However, to align with the logic of the question and the options provided, if we consider the total assets and the breakdown given, the depreciation would be the difference between the gross plant and equipment and its net book value after depreciation. Without explicit information on accumulated depreciation, we focus on the inventory calculation, which is correctly identified as $750,000. The correct interpretation of the depreciation would depend on additional information not provided in the question, leading to a focus on the inventory calculation for the choice.

Harvey's Hamburger Stand Has Total Assets of $3 Million of Which