Question

Prepare a balance sheet.

Please show all calculations so I know how to do it

Required information Assume Down, Inc., was organized on May 1 to compete with Despair, Inc.--a company that sells de- motivational posters and office products. Down, Inc., encountered the following events during its first month of operations. a. Received $41,000 cash from the investors who organized Down, Inc. b. Borrowed $20,000 cash and signed a note due in two years. c. Ordered equipment costing $23,000. d. Purchased $11,000 in equipment, paying $3,000 in cash and signing a six-month note for the balance. e. Received the equipment ordered in (c), paid for half of it, and put the rest on account

Answer 1

Meaning of Balance sheet:

Balance sheet is the part of either individual or the company’s financial statement showing their total assets and liabilities.

The total of assets should total to your liabilities.

Use of Balance Sheet:

Balance sheet is prepared as on the last date of the calendar year most preferably.

In other words, it is prepared on year on basis or at year end.

It is important to make to understand what amount of assets and liabilities a person or entity holds.

Meaning of Assets and Liabilities:

Those things that give or enhances the value of user is called asset for example cash and cash equivalents like bank, money to be received from debtors, inventory any sort of fixed asset like furniture, plant and machinery.

Liabilities refer to what a person or entity owes to others like, short term long term borrowings, amount to be paid to creditors, money invested in business or rather capital contributions.

Balance Sheet of D Inc:

Preparation of Balance Sheet requires tallying total assets with liabilities as shown below

S Assets Current Assets Balance Sheet as at May3l of D Inc. Liabilities Current Liabilities (41000-3000- 46500 11500+20000) Notes Payable Cash 8000 Fixed Assets Equipment Other Equipment 23000 11000 Notes Payable (long term) Long term borrowing for 2 years Long term Creditors 20000 11500 Stockholder's Equity Common Stock 41000 Total Assets 80500 Total Liabilities 80500

Here we see the Balance Sheet Tallied.

Let’s understand each point step by step-

a) Receiving of cash of $41000 is the capital contribution, hence we will increase current assets by 41000 and increase stockholder’s equity as well with equal amount, since money was brought into business.

b) Borrowing of Cash will increase the cash under current assets by $20000 and at the same time it will be paid after 2 years, hence increasing the notes payable long term for 2 years.

c) At the time of ordering equipment asset is created with $23000, increasing the fixed assets.

d) Purchase of other equipment of $11000 will increase fixed assets with this amount and 3000 was paid in cash, this will reduce the cash balance by 3000 hence subtracted and shown in the figure.

Further $8000 is yet to be paid, hence it is short term since a six-month payable period.

e) The equipment ordered of $23000 was paid in cash with 50% amount which comes to $11500, this amount shall be reduced from cash balance.

Now, remaining 50% which is $11500 is not yet paid hence to be shown under Notes Payable Long term.