Accounting for Lindsey

MBA Prep Week
Monday—Accounting

When all else fails, smile and accept your fate.

This is the mantra I repeated to myself as my knowledgeable, kind accounting prep professor spoke to the class about ratio of fixed assets to long term liabilities.

Since nothing makes me chuckle more than math mashed-up with a heaping spoon of popular culture insanity, I considered the Hollywood application of this accounting formulas.

The ratio of fixed assets to long term liabilities basically tells a lender, such as a bank, whether or not a company has enough valuable stuff to warrant a long-term loan. Will it be able to make its payments?

You calculate the ratio using this formula:

Fixed Assets ÷ Long-Term Liabilities =

Ratio of Fixed Assets to Long-Term Liabilities
(or as the kids call it, the “how good a long-term borrower are you ratio?”)

For our purposes, let’s say Lindsey Lohan is not a human (insert joke here), but a corporate entity.

Lindsey’s Fixed Assets:

Property—A vomit soaked condo somewhere on the Hollywood strip, complete with cocaine showered carpet and crystal meth lab in the bathroom.

Vehicles—Whatever car she’s jacked in recent days

Equipment—I had a zinger about breast implants here, but let’s go with unopened Amazon Kindle instead.

Lindsey’s Long-term liabilities:

Notes Payable (i.e. a mortgage payment)—Has a small mortgage payment. She had a huge amount of cash to put down on her building because of all the money’s she’s saved by not eating.

Bonds Payable—In order to fund its insatiable appetite for 151 Rum and cigarettes, Lindsey Corp. sold over 3,000 bonds at $10,000 pop. This means she owes 3,000 Mean Girls fans (they were the only ones who’d buy it, (sorry L-Bone)) $10,000 each. In addition, she has to pay those bondholders interest on that $10,000 every six months. A major ouchie in Lindsey Corp’s wallet.

Contingent Liability—This is the worst of all. Contingent liability is the probability and estimation of if and how much a company might have to payout in repair work for their products (if they’re guaranteed or under warrantee), or how much the company might have to cough up if they get sued.

Unfortunately for Lindsey Corp, the company has a bit of a dangerous reputation. She blows off movie shoots, shows up for work impaired, and carjacks Los Angelino motorists so that she can chase down her personal assistant.

All very bad things for Lindsey Corp.

So, you add up Lindsey Corp.’s fixed assets…divide that by the sum of her long-term liabilities…(carry the one, round to the nearest hundredth…)

Lindsey Corp.’s ratio is (and now we'll have a competition to finish the blog! The most creative entry wins my eternal admiration!)