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The balance sheet of a firm shows current liabilities of $56,300 and long-term debt of $289,200...

Question:

The balance sheet of a firm shows current liabilities of $56,300 and long-term debt of $289,200 as of last year. Current liabilities are $76,900 and long-term debt is $248,750 as of today, which is the end of the current year. The financial statements for the current year reflect an interest paid amount of $29,700 and dividends of $19,000.

What is the amount of the net new borrowing?

Total Debt:

A company's debt represents the amount it owes to a third party and the debt can be classified into two types based on the duration of the debt. If a debt has to be repaid within one year, it is classified as a current liability. And if a debt has to be repaid after one year, it is classified as long-term debt.

Answer and Explanation:

Answer: The amount of the net new borrowings is -$40,450.

As per the firm's data:

  • Beginning balance in current liabilities = $56,300
  • Beginning balance in long-term debt = $289,200
  • Ending balance in current liabilities = $76,900
  • Ending balance in long-term debt = $248,750
  • Interest expense = $27,900
  • Dividends paid = $19,000

Computation:

  • Net new borrowings = Ending balance in long-term debt - Beginning balance in long-term debt
  • Net new borrowings = $248,750 - $289,200
  • Net new borrowings = -$40,450

Learn more about this topic:

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Long-Term Debt: Definition, Cost & Formula

from Financial Accounting: Help and Review

Chapter 8 / Lesson 7
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