Question

The common stock outstanding of Burns & Stevens Corporation had a value of $7,800 at year-end when Retained Earnings had a balance of $4,480. The company's only liabilities for the calendar year included two-year Notes Payable, $18,750; Accounts Payable, $2,300; and Interest Payable, $1,500. The company's asset balances were as follows: Building, $12,000, with $900 in accumulated depreciation; Accounts Receivable, $1,300; Short-Term Investments, $1,980; Land, $18,700; and Cash, $1,750. Prepare the corporation's balance sheet.

Answer 1

For the bank's balance sheet, the assets total $620 (reserves, government bonds, and loans) and the liabilities are $400 (deposits). The bank's net worth, calculated as assets minus liabilities, comes to $220.

Step-by-step explanation:

To set up a T-account balance sheet for the bank and calculate its net worth, list the assets on one side and the liabilities on the other. The bank's assets include reserves, government bonds, and loans made. The liabilities primarily consist of the deposits held by the bank.

Assets:

• Reserves: $50
• Government Bonds: $70
• Loans: $500

Liabilities:

• Deposits: $400

The bank's net worth, also known as shareholders' equity, is calculated as the difference between its total assets and total liabilities. In this case, the net worth is the sum of its assets minus the liabilities:

Net Worth = Assets - Liabilities

Net Worth = ($50 + $70 + $500) - $400

Net Worth = $620 - $400

Net Worth = $220

The bank's net worth is therefore $220. This figure represents the equity of the bank's owners and is an important indicator of the bank's financial health.