THE BALANCE SHEET Case
For the balance sheet for ABC Company below. Answer each question below and explain your answer with numbers, computations, and 3 to 5 sentences.
1. Determine total assets and total liabilities for ABC Company. Add some thoughts about the significance of the classifications.
2. Complete the accounting equation below using numbers from ABC’s balance sheet instead of words. In addition, explain how this equation is significant for the creation and understanding of the financial statements.
Assets = Liabilities + Equity
3. Are short-term payables or receivables larger? Show the computation. Explain the significance of the difference.
4. Is the order in which assets and liabilities are listed on the balance sheet significant? Explain.
5. the total amount owed by ABC at the end of the year. How could this information be useful to a reader of the balance sheet?
6. Does the company have more assets or liabilities? What is the significance of determining the difference between net assets and net liabilities? What happens to a company if the total liabilities exceed the total assets?
7. If the company borrows an additional $15,000, which two balance sheet accounts will be affected? The new totals for total assets and total liabilities are ……?
8. Explain retained earnings. How is this accounting computed? Is retained earnings an asset, a liability, or an equity account?
9. What is the “total wealth” of the company according to the balance sheet? What are some other accounting terms for “wealth” in connection with corporate entities? For example, retained earnings account fits this category, but it is not the only account.
10. Assume that the company paid $20,000 in dividends to the shareholders. Which balance sheet accounts (items) would have been affected by the payment?