Question

A firm has net working capital of $3,000, long-term debt of $9,500, total asset of $19,000, and fixed assets of $12,500. If the firm currently has $3,000 in retained earnings and $500 in Common Stock (Par Value), what is the amount of the firm's capital surplus/additional paid-in capital

Answer 1

$2,500

Step-by-step explanation:

Remember Accounting Equation : Assets = Equity + Liabilities.

Stated differently : Equity = Assets - Liabilities

But we first need to find the total amount of liabilities

Total Liabilities = Non Current Liabilities + Current Liabilities

Current Liabilities are not given. Hence we will use the Working Capital amount to calculate this.

Current Liabilities = Current Assets - Working Capital

= ($19,000 - $12,500) - $3,000

= $3,500

Thus

Total Liabilities = $9,500 + $3,500 = $13,000

Capital surplus/additional paid-in capital = Assets - Liabilities - Par Value Common Stock - Retained Earnings

= $19,000 - $13,000 - $3,000 - $500

= $2,500

Thus the firm's capital surplus/additional paid-in capital is $2,500