Answer:
Long-term debt 1,600,000
RE 2,000,000
Explanation:
Assets = 5,000,000
40% of assets financed with debt:
5,000,000 x 40% = 2,000,000
debt can be either short or long thus if short term debt = 400,000
long term debt: total debt - short term debt
2,000,000 - 400,000 = 1,600,000
now with the basic accounting equation we solve for RE
Assets = liabilities + equity
5,000,000 = 2,000,000 + equity
equity = 3,000,000
equity in this scenario is compose of common stock and their additional paid-in which total is 1,000,000
and retained earnings Hence:
3,000,000 - 1,000,000 = 2,000,000 retained earnings
