Question

Determining Current Assets and Current Liabilities from Other Accounts Given the following normal account balances, determine the missing amounts from a balance sheet dated December 31. Given amounts Dec 31 Equipment, net $27,000 Patent 6,000 Notes payable (long-term) 8,000 Common stock 18,000 Retained earnings 5,000 Total liabilities 20,000 Note: There are no other missing amounts. Missing amounts Dec 31 Total current assets Total current liabilities ?

Answer 1

The student's balance sheet question relates to the setup of a T-account for a bank with given assets and liabilities. To calculate net worth, we find the difference between total assets ($620) and total liabilities ($400), resulting in a net worth of $220. The bank's T-account should reflect this in a balanced manner.

Step-by-step explanation:

In constructing a balance sheet using a T-account, we separate the firm's assets on the left side from its liabilities and net worth on the right. For a bank, assets typically include reserves, government bonds, and loans it has issued. Liabilities commonly consist of the deposits received from the bank's customers. Net worth, a part of the equation, is the difference between total assets and total liabilities.

Let's calculate the bank's situation from the given balances:

• Total Assets = Reserves + Government Bonds + Loans
• Total Liabilities = Deposits
• Net Worth = Total Assets - Total Liabilities

For the given bank:

• Total Assets = $50 (Reserves) + $70 (Government Bonds) + $500 (Loans) = $620
• Total Liabilities = $400 (Deposits)
• Net Worth = Total Assets - Total Liabilities = $620 - $400 = $220

The T-account balance sheet would be set up with assets on the left, totaling $620, and liabilities plus the net worth on the right, also totaling $620, to balance out.