The balance sheet reports a company's assets, liabilities, and equity as of a specific date. This is different from an income statement, which covers a period of time.
The following example questions ask you to calculate a company's total liabilities and total equity on a given day.
Practice questions
Use the following information to answer the questions. A company reports the following on its balance sheet:
Cash: $10,000
Accounts receivable: $20,000
Inventory: $14,000
Prepaid expenses: $3,000
Property, plant, and equipment: $35,000
Accumulated depreciation: $2,000
Accounts payable: $5,000
Accrued expenses: $6,000
Short-term notes: $7,000
Long-term notes: $10,000
Capital stock: $40,000
Retained earnings: $12,000
What are the company's total liabilities?
What is the company's total equity?
Answers and explanations
$28,000
In the problem presented, total liabilities include accounts payable, accrued expenses, short-term notes, and long-term notes. To calculate the total liabilities, you need to add them up as follows: accounts payable of $5,000 plus accrued expenses of $6,000 plus short-term note of $7,000 plus long-term notes of $10,000 equals total liabilities of $28,000.
$52,000
In the problem presented, total equity includes capital stock and retained earnings. To calculate the total equity, you need to add them up as follows: capital stock of $40,000 plus retained earnings of $12,000 to give a total equity of $52,000.
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