Balance Sheet Ted's Taco Shop has total assets of $5 million.Forty percent of these assets are financed with debt of which $400,000 is current liabilities.The firm has no preferred stock but the balance in common stock and paid-in surplus is $1 million.Using this information what is the balance for long-term debt and retained earnings on Ted's Taco Shop's balance sheet?
A)$400,000, $1 million
B)$1.6 million, $2 million
C)$1.6 million, $3 million
D)$2 million, $3 million

Question

Quizplus · Accepted Answer

Total debt is 40% of $5 million, which is $2 million. With $400,000 in current liabilities, long-term debt is $2 million - $400,000 = $1.6 million. Common stock and paid-in surplus is $1 million, so retained earnings is $5 million - $2 million (total debt) - $1 million (common stock) = $2 million.

Balance Sheet Ted's Taco Shop Has Total Assets of $5