Homework SourseHow should we define debt and equity using a reorganized bal
How should we define debt and equity using a reorganized balance sheet?
Solution
Balance sheet shows the amount of debt and equity.
Debt means all sorts of liabilities --- short-term and long-term.
Equity is the value of ownership rights; it includes common stock, preferred stock, and retained earnings.
A format of balance sheet is as below:
In the book of ….
Balance sheet
As at 31/12/2017
Assets
Amount, $
Liabilities & Equity
Amount, $
Current assets:
Liabilities:
Cash
10,000
Current liabilities
17,000
Accounts receivable
12,000
Long-term debt
42,000
Total current assets
22,000
Total liabilities
59,000
Fixed assets:
Stockholders’ equity:
Machinery
100,000
Common stock
50,000
Land and building
58,000
Preferred stock
52,000
Total fixed assets
158,000
Retained earnings
19,000
Total assets
180,000
Total stockholders’ equity
121,000
Total liabilities & equity
180,000
Note: all figures are imaginary.
The above balance sheet reflects the following formulas:
Debt = Total assets – Total stockholders’ equity
Equity = Total assets – Total liabilities
| Assets | Amount, $ | Liabilities & Equity | Amount, $ |
| Current assets: | Liabilities: | ||
| Cash | 10,000 | Current liabilities | 17,000 |
| Accounts receivable | 12,000 | Long-term debt | 42,000 |
| Total current assets | 22,000 | Total liabilities | 59,000 |
| Fixed assets: | Stockholders’ equity: | ||
| Machinery | 100,000 | Common stock | 50,000 |
| Land and building | 58,000 | Preferred stock | 52,000 |
| Total fixed assets | 158,000 | Retained earnings | 19,000 |
| Total assets | 180,000 | Total stockholders’ equity | 121,000 |
| Total liabilities & equity | 180,000 |
