Suppose that just before the end of the year, the business paid an additional $400,000 of its accounts payable. Normally, it would not have accelerated payments of accounts payable, but the order to do so came down from “on high,” and the payments were made. Why do you think the business may have done this?
Suppose the business held its books open for several days into the next year. It recorded an additional $200,000 of payments from customers as if they had been received on December 31 (the last day of its fiscal year) even though the money wasn’t actually received and deposited in its bank account until after the end of the year. Why do think the business may have done this?
Q. Determine whether the size of the business’s balance sheet is consistent with the size of its income statement.
|
Assets |
Liabilities & Owners’ Equity |
||
|
Cash |
$1,500,000 |
Accounts Payable |
$700,000 |
|
Accounts Receivable |
$1,000,000 |
Accrued Expenses Payable |
$600,000 |
|
Inventory |
$1,800,000 |
Short-term Notes Payable |
$1,500,000 |
|
Prepaid Expenses |
$300,000 |
Total Current Liabilities |
$2,800,000 |
|
Total Current Assets |
$4,600,000 |
Long-term Notes Payable |
$2,000,000 |
|
Property, Plant, & Equipment |
$4,800,000 |
Owners Equity: |
|
|
Accumulated Depreciation |
($1,400,000) |
Capital Stock (10,000 shares) |
$1,000,000 |
|
Cost Less Depreciation |
$3,400,000 |
Retained Earnings |
$2,200,000 |
|
Total Assets |
$8,000,000 |
Total Owners’ Equity |
$3,200,000 |
|
Total Liabilities & Owners’ Equity |
$8,000,000 |
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