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Accounting Equation

The balance sheet at 12/31/04 and 12/31/05 show the following:

Current Assets Long Term Assets C Liabilities LT Liabilities Owners Equity
04 ? ? $360,000 ? ?
05 ? $750,000 ? ? $420,000

All Assets & Liabilities are included. During 2005, Net Income was the only event, other than Dividends Declared of $140,000, affecting Equity. Working Captial decreased by 20% during the year, and is $200,000 at 12/31/05. Total Assets at 12/31/04 were $1,350,000. During 2005, Current Assets increased by $70,000 and Long-Term Liabilites decreased by $90,000.

Compute the amt of 1) Working Captial at 12/31/04, 2) Long-Term Assets at 12/31/04, 3) Net Income reported FYE 12/31/05 4) Owners Equity at 12/31/04

CLUE: TA(05) + TL (04) is $2,410,000

Solution Preview

WC (05)=200,000.
WC (04)= 200,000/0.8=250,000 ( since 05 is 20% less than 04).
CL(04)=360,000(given).
CA(04)= WC+CL=250,000+360,000=610,000.
TA ( total Assets)(04)=1,350,000 (given).
LTA ...

Solution Summary

The solution explains how to calculate the assets, liabilities and equity using the accounting equation

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