Question

Sophie’s Tobacco Shop has total assets of $98.8 million. Fifty percent of these assets are financed with debt of which $30.6 million is current liabilities. The firm has no preferred stock but the balance in common stock and paid-in surplus is $26.4 million.

What is the balance for long-term debt and retained earnings on Sophie’s Tobacco Shop’s balance sheet?

Answer 1

The total debt on the balance sheet is $98.8 million x 50% = $49.4 million.

Step-by-step explanation:

The current portion of debt is given as $30.6 million, so the long-term debt is $49.4 million – $30.6 million = $18.8 million.

The balance of common stock and paid-in surplus is $26.4 million, which means the retained earnings balance would be: $98.8 million – $30.6 million – $18.8 million – $26.4 million = $22.0 million.

Therefore, the balance for long-term debt on Sophie’s Tobacco Shop’s balance sheet is $18.8 million, and the balance for retained earnings is $22.0 million.