IS SCHWESER WRONG? I BELIEVE THEY MAY BE BECAUSE I THINK THAT 20M SHUOLD BE ADDED TO CA AND CL FOR THE LEASE. Consider the balance sheet shown below for the Starburst Corporation: Starburst Corporation Balance Sheet ( millions) Assets Liabilities & Owners’ Equity Cash 20 Accounts payable 30 Marketable securities 10 Notes payable 10 Accounts receivable 40 Total current liabilities 40 Inventories 80 Total current assets $150 Long-term debt $120 Common stock 40 Net property, plant, & equipment $230 Retained earnings 200 Intangible assets 20 Total stockholders’ equity $240 Total assets $400 Total liabilities & equity $400 Footnotes to Starburst’s financial statements include the following information: Inventories are valued at cost as determined by the last in, first out (LIFO) method. The LIFO reserve is $10 million. Additional operating facilities and equipment are financed with operating leases that have a present value of $20 million. Intangible assets represent $4 million of goodwill from previous acquisitions. Due to a decrease in interest rates, Starburst’s long-term debt has a current market value of $150 million. Which of the following is closest to Starburst’s current ratio after making the necessary balance sheet adjustments? A) 4.00. B) 3.50. C) 3.75. Your answer: B was incorrect. The correct answer was A) 4.00. Inventories should be adjusted to reflect the LIFO reserve of $10 million. This results in adjusted total current assets equal to $160. Since current liabilities remain at $40 million, the adjusted current ratio is 160 / 40 = 4.0
oh nevermind. just realized that leases are added to pp&e and to long term debt, not to CA and CL. thanks to anyone who took a look.
nopes they are correct