The current asset section of the balance sheet consists of cash, marketable securities, accounts receivables, and inventories. The December 31 balance sheet revealed the following:
Inventories $ 840,000
Total Assets $2,800,000
Current Ratio 2.25
Acid-Test Ratio 1.2
Debt to Equity Ratio 1.8
I need to determine the following balance sheet items:
1. Current Assets
2. Shareholders’ Equity
3. Noncurrent Assets
4. Long-Term liabilities
I do not know where to begin. Do I begin by trying to determine the current assets? Can help anyone point in the right direction to start?

You're correct... solving for Current Assets would be a good jumping-off point. I'll get the ball teed up for you, and then you can take the swings.

Let's let CA, CL, and I stand for Current Assets, Current Liabilities, and Inventory, respectively. You're given two pieces of info, the Current Ratio and the Acid Test Ratio...

Current Ratio = = 2.25

and Acid Test Ratio = = 1.2

Substituting in our known value of I, you end up with two equations and two unknowns...

2.25(CL) = CA
1.20(CL) = CA - 840,000

Solve that to determine Current Assets and Current Liabilities. (One approach: Deduct the second equation from the first, which immediately eliminates CA. Solve for CL, and use that CL amount in either of the equations to determine CA.)

Now that you know what Current Assets are, and you're given Total Assets, then the solution for Noncurrent Assets (#3) is a piece o' cake.

Next, you're given that Debt/Equity is 1.8, which means that Debt is 1.8 times Equity, or D = 1.8E. We're going to use this new expression for "D" next.

You're also given that Total Assets is $2.8M. Remember that total assets just equals Debt plus Equity. Putting it together, you've got...

Total assets = D + E = 1.8E + E = 2.8E = $2,800,000.

That tells you right away that Equity must be?

And then to wrap it up, by knowing Equity, you can quickly determine Total Debt. And since you already figured out Current Debt above, Long-Term Debt (#4) is readily determined.

Cheers!

Wow, I have seen this problem SOOO many times in my real work over the last week. I think I have the whole thing memorized.

I have to wonder if this is really an accounting class or algebra. Takes some pretty good math analysis ability to solve this one. I'll never comprehend why they do this in problems.

(Sorry - just commentary. :-))

Roger that, M3. It ain't exactly an everyday thing, having to recreate a full balance sheet from the scraps of a partial one.

There are two possible benefits that I can fathom as to why these kinds of problems are given:

Using ratios in a nonstandard way (as tools to help find missing balance sheet pieces) might help students increase their fluency with the ratios themselves.

Also, it seems that a problem like this might help one's mind get wrapped around how the various sections, parts, and subparts of a balance sheet all fit together.

I don't know... just some thoughts at random. Have a great one!

Working with students for 15 years, I can pretty much guarantee you that they aren't getting that out of doing this. Mostly just frustration. I see lot of "projects" with ratios and it ends up being more of a plug-n-chug event, with little to no learning. They get done and have no clue what it was about.

I guess that's why it bothers me so much. Better left for finance, where they get into it more indepth. But they never ask my opinion. ;)

Thank you all very much for your help.

Most decisions made by management impact the ratios analysts use to evaluate performance Indicate by letter whether each of the 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.
Issuance of long-term bonds
Issuance of short-term notes
Payment of accounts payable
Purchase of inventory on account
Purchase of inventory for cash
Purchase of 31uipment with a 4 year note
Retirement of bonds
Sale of common stock
Write-off of obsolete inventory
Purchase of short-term investment for cash
Decision to refinance on a long-term basis some currently maturing debt

How do you calculate