1. Problem 3-98 Bronco Electronics' current assets consist of cash, marketable securities, accounts
receivable, and inventories. The following data were abstracted from a recent financial
statement: Inventories $ 200,000 Total assets $ 1,700,000 Current ratio 4.0 Acid-test ratio 2.75
Debt to equity ratio 1.5 Required: Compute the long-term liabilities for Bronco:
Solution
Current ratio = Current Asset/Current Liability
Current Asset = 4*Current Liability
Acid-test ratio = (Current Asset - Inventories)/Current Liability
2.75 = (4*Current Liability - 200000)/Current Liability
2.75*Current Liability = 4*Current Liability - 200000
Current Liability = 200000/(4-2.75)
Current Liability = $ 160000
Current Asset = 4*160000
Current Asset = $ 640000
Debt to Equity ratio = 1.5
Total Debt = 1.5/(1+1.5) * 1700000
Total Debt = $ 1,020,000
Total Debt = long-term liabilities + Current Liability
Long-term liabilities = 1020000 - 160000
Long-term liabilities = $ 860,000

2. Answer
Long-term liabilities = $ 860,000