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Save Submit Assignment for Grading Problem 3.01 Question 1of8 Check My Work Click here to read the eBook: The Balance Sheet BALANCE SHEET The assets of Dallas & Assodiates consist entirely of current assets and net plant and equipment. The firm has total assets of $3 million and net plant and equipment equals $2.5 miltion. It has notes payable of $145,000, long-term debt of $751,000, and total common equity of $1.45 million. The firm does have accounts payable and accruals on its balance sheet. The firm only finances with debt and common equity, so it has no preferred stock on its balance sheet write out your answers completely. For example, 25 million should be entered as 25,000,000. Enter negative amounts, if any, with a minus sign a. What is the company's total debt? b. What is the amount of total liabilities and equity that appears on the firm's balance sheet? c. What is the balance of current assets on the firm's balance sheet? d. What is the balance of current liabilities on the firm's balance sheet? e what is the amount of accounts pavable and accruals on its balance sheet Mint: Consider this as a single line item on the fim's balance shet.) e here to search 7-58 P

Answer 1

Balance sheet is a financial statement which provides information about financial position of a firm. Balance sheets are prepared on concept of Accounting equation as explained in dual accounting system.

Accounting Equation refers to -

Total Assets = Liabilities + Equity

Where,

• Total Assets = Current Assets + Non-current Assets(Fixed Assets)
• Liabilities = Debts + Current Liabilities
• Equity = Common Stock + Preferred Stock + retained earnings
• Current Assets are assets which are likely to encash within 12 months such as inventory, accounts receivable, cash etc.
• Current Liabilities are liabilities which are likely to payoff within 12 months such as Accounts payable, accurals etc.
• Net working capital = Current Assets - Current Liabilities
• Net operating working capital = operating current assets - operating current liabilities

Lets draw first Balance sheet of Dallas and Associates with given information

Liabilities and Equity	Amount ($)	Assets	Amount ($)
Equity	1,450,000	Non-current Assets
		Net Plant and Equipment	2,500,000
Non Current Liabilities
Debt	751,000	Current Assets	500,000
Current Liabilities
Notes Payable	145,000
Accounts Payable and accruals	654,000
Total Liabilities and Equity	3,000,000	Total Assets	3,000,000

Please note - Accounts Payable and accruals is a balancing figure as per accounting equation. The amount of Accounts payable and accruals not provided in question thus, using accounting equation we can calculate this amount, follow as below-

Accounts payable and accruals = Total Assets - Equity - Debt - Notes payable.

a) Company's Total Debt = $ 3,000,000 - $ 1,450,000 = $ 1,550,000

b) Total Liabilities and Equity = $ 3,000,000

c) Current Assets = $ 500,000

d) Current liabilities = $ 145,000 + $ 654,000 = $ 799,000

e) Accounts payable and accruals = $ 654,000

f) Net Working Capital = $ 500,000 - $ 799,000 = - $ 299,000

g) Net operating working capital = $ 500,000 - $ 654,000 = - $ 154,000

Notes payable is not an operating current liabilities. Its a kind of short term loan. That's why not included while calculating Net operating working capital. it assumed that all current assets are operating current assets.

h) Monetary difference between f) and g) = - $ 145,000

The difference between Net working capital and Net operating working capital is -$ 145,000 which is amount of notes payable.