Wims, inc., has current assets of $5,000, net fixed assets of $23,000, current liabilities of $3,500, and long-term debt of $7,900.
a. What is the value of the shareholders' equity account for this firm? (do not round intermediate calculations.)
b. How much is net working capital? (do not round intermediate calculations.)

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Rupicapra Rupicapra · Answer 1 · 2018-09-14T08:46:14+02:00

Answer:

a. The value of shareholder's equity account for this firm is $16,600.

b. The net working capital for Wims Inc. is $1,500.

a. We start off by looking at the Accounting Identity:

[tex]Total Assets = Total Liabilities + Shareholders' Equity[/tex]

Since

[tex]Total Assets = Current Assets + Net Fixed Assets[/tex]

and

[tex]Total Liabilities = Current Liabilities + Long-term debt[/tex]

We can rewrite this accounting identity as follows:

[tex]Current Assets + Net Fixed Assets = Current Liabilities + Long-term debt + Shareholders' Equity[/tex] ----- (1)

Plugging in the values from the question in (1) above we get,

[tex]5000 +23000 = 3500 + 7900 + Share holders' equity[/tex]

[tex]28000 = 11400 + Share holders' equity[/tex]

[tex]28000 - 11400 = Share holders' equity[/tex]

[tex]Share holders' equity = $16,600[/tex]

b. The formula for Net Working Capital is:

[tex]Net Working Capital = Current Assets - Current Liabilities[/tex]

[tex]Net Working Capital = 5000 - 3500[/tex]

[tex]Net Working Capital = $1500[/tex]