The following December 31, 2016 fiscal year end account balance information is available for the Stonebridge Corporation:

Cash and cash equivalents $5,000

Accounts receivable (net) 20,000

Inventories 60,000

Property, plant and equipment (net) 120,000

Accounts payable 44,000

Wages payable 15,000

Paid in capital 100,000

The only asset not listed is short term investments.

The only liabilities not listed are a $30,000 note payable due in two years and related accrued interest of $1,000 due in four months.

The current ratio at year end is 1.5:1.

Required:

Determine the following at December 31, 2016:

a) Total current assets.

b) Short term investments.

c) Retained earnings.

a) Total Current Assets $ 90,000

b) Short Term Investments $ 5,000

c) Retained Earnings $ 20,000

Explanation:

To determine the total current assets we have to work with the current ratio information provided in the question.

The current assets are:

Cash and cash equivalents $ 5,000

Accounts receivable (net) $ 20,000

Inventories $ 60,000

Current assets excluding Short term investments $ 85,000

The current liabilities are:

Accounts Payable $ 44,000

Wages Payable $ 15,000

Accrued interest due in 4 months $ 1,000

Total current liabilities $ 60,000

The current ratio at year end is 1.5 : 1

The total current assets is 1.5 * $ 60,000 = $ 90,000

The short term investments is calculated as

Total Current assets - Current assets excluding short term investments

$ 90,000 - $ 85,000 = $ 5,000 Short Term Investments

For determining the retained earnings, we have to use the balance sheet equation.

Total assets = Total liabilities + Stockholders Equity

Total assets = Current assets + Fixed Assets

Total assets = $ 90,000 + 120,000 (Net Property Plant & Equipment)

Total assets = $ 210,000

Total liabilities = Current Liabilities + Long term Liabilities

$ 60,000 + 30,000 (Note Payable) = $ 90,000

Using the balance sheet equation

$ 210,000 (Total assets) - $ 90,000 (Total Liabilities) + Shareholders Equity

$ 120,000 = Shareholders equity

Shareholders equity = Capital + Retained earnings

$ 120,000 = $ 100,000 + Retained earnings

Retained Earnings = $ 20,000