BALANCE SHEET The assets of Dallas & Associates consist entirely of current asse
ID: 2335832 • Letter: B
Question
BALANCE SHEET The assets of Dallas & Associates consist entirely of current assets and net plant and equipment. The firm has total assets of $3 million and net plant and equipment equals $2.25 million. It has notes payable of $200,000, long-term debt of $900,000, and total common equity of $1.75 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. What is the company's total liabilities?
Explanation / Answer
Answer : Total Libilities consists Internal Liabilities (i.e. Equity) + External Liabilities (i.e. Other than Equity). Here we can say that Total Liabilities = Total Assests = Liabilities + Equity.
Accordingly.
Option I :- Total Assets = Total Liabilities
In this case Since firm has total assets of $3 million, Total Liabilities of firm would be $3,000,000
Option II :- Lets find out Accounts Payable and Accruals first = $3,000,000 - $200,000 - $900,000 - $1,750,000 = $150,000.
Hence Total Liabilities = $200,000 + $900,000 + $1,750,000 + $150,000 = $3,000,000
Answer would be $3,000,000.
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