Can the net worth of a business go negative? If so, explain briefly how this may happen and if it means that the business would have a negative cash balance.
Presents the comparative balance sheet of the business and to Figure 8-2 that presents its statement of changes in stockholders’ equity. Suppose the business had paid $175,000 cash dividends (instead of $250,000) to stockholders in 2007. In this scenario, which dollar amounts in the business’s comparative balance sheet would be different as the result of this one change?
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Balance Sheets at Year-Ends 2006 and 2007 |
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Assets |
2006 |
2007 |
Changes |
|
Cash |
$700,000 |
$901,000 |
$201,000 |
|
Accounts Receivable |
$500,000 |
$535,000 |
$35,000 |
|
Inventory |
$780,000 |
$825,000 |
$45,000 |
|
Prepaid Expenses |
$110,000 |
$125,000 |
$15,000 |
|
Current Assets |
$2,090,000 |
$2,386,000 |
|
|
Property, Plant, & Equipment |
$2,450,000 |
$2,875,000 |
$425,000 |
|
Accumulated Depreciation |
($685,000) |
($876,000) |
($191,000) |
|
Cost Less Depreciation |
$1,765,000 |
$1,999,000 |
|
|
Total Assets |
$3,855,000 |
$4,385,000 |
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Liabilities & Owners’ Equity |
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|
Accounts Payable |
$350,000 |
$385,000 |
$35,000 |
|
Accrued Expenses Payable |
$165,000 |
$205,000 |
$40,000 |
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Short-term Notes Payable |
$500,000 |
$625,000 |
$125,000 |
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Current Liabilities |
$1,015,000 |
$1,215,000 |
|
|
Long-term Notes Payable |
$1,000,000 |
$1,125,000 |
$125,000 |
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Owners Equity: |
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|
Capital |
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Statement of Changes in Stockholders’ Equity |
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Capital Stock |
Retained Earning |
Total Owners’ Equity |
|
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Balance at end of 2005 |
$750,000 |
$922,000 |
$1,672,000 |
|
Net Income – 2006 |
$318,000 |
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Cash Dividends – 2006 |
($150,000) |
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Balance at end of 2006 |
$750,000 |
$1,090,000 |
$1,840,000 |
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Capital Stock Issue |
$50,000 |
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Net Income – 2007 |
$405,000 |
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Cash Dividends – 2007 |
($250,000) |
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Balance at end of 2007 |
$800,000 |
$1,245,000 |
$2,045,000 |