The background material for this module explains and shows examples of balance sheets.
Pay attention to the layout and definitions before reviewing the balance sheet the for ABC Company shown below.
This assignment has two parts.
- An essay
- Answer 10 questions relating to ABC’s balance sheet.
Write a minimum of 300 words about the role of the balance sheet as one of the four required financial statements.
Comment on some significant characteristics of the balance sheet. Who is interested in the information? What kind of information does the balance sheet convey to users?
Review the background material for the second module before attempting the case below in order to answer a series of questions about the balance sheet for ABC Company shown below. Start with the accounting equation and pay attention to definitions of assets, liabilities, and equity.
The background information for the module includes the basic concepts, but for more ideas, go to the optional background source principlesofaccounting.com. The site also offers multiple videos that you may find relevant. You may also use other sites for ideas to complete the table. Do not forget to reference the sources used.
Find the balance sheet for ABC Company below. The data is to be used for part 2 of the current case assignment and the SLP for this module.
Interest receivable Inventory
Commonstock Paid-incapital Retainedearnings
Totalassets 5 2U2,000
Answer each question below and explain your answer with numbers, computations, and 3 to 5 sentences.
- Determine total assets and total liabilities for ABC Company. Add some thoughts about the significance of the classifications.
- 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
- Are short-term payables or receivables larger? Show the computation. Explain the significance of the difference.
- Is the order in which assets and liabilities are listed on the balance sheet significant? Explain.
- Determine 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?
- 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?
- 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 …..?
- Explain retained earnings. How is this accounting computed? Is retained earnings an asset, a liability, or an equity account?
- 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.
- Assume that the company paid $20,000 in dividends to the shareholders. Which balance sheet accounts (items) would have been affected by the payment? Use numbers and be specific.
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