The assets are financed by a combination of both debt and equity.
How to solve and explain
Sky Blue Corporation
Balance Sheet
December 31
Assets Amount ($)
Current Assets:
Cash 50,000
Accounts Receivable 30,000
Inventory 45,000
Prepaid Expenses 5,000
Total Current Assets 130,000
Property, Plant & Equipment 200,000
Less: Accumulated Depreciation (30,000)
Total Non-Current Assets 170,000
Investments 20,000
Total Assets 320,000
Liabilities and Equity Amount ($)
Current Liabilities:
Accounts Payable 25,000
Short-term Notes Payable 10,000
Total Current Liabilities 35,000
Long-term Notes Payable 50,000
Total Liabilities 85,000
Equity:
Common Stock 100,000
Retained Earnings 55,000
Total Equity 155,000
Total Liabilities and Equity 320,000
The assets of Sky Blue Corporation are primarily financed by both debt and equity.
While the company has substantial equity ($155,000) from common stock and retained earnings, it also has liabilities, including both short-term and long-term debt ($85,000).
Therefore, the assets are financed by a combination of both debt and equity.
The Complete Question
Sky Blue Corporation provided the following adjusted trial balance as of December 31:
Sky Blue Corporation
Adjusted Trial Balance
December 31
Debit ($) Credit ($)
Cash 50,000
Accounts Receivable 30,000
Inventory 45,000
Prepaid Expenses 5,000
Property, Plant & Equipment 200,000
Accumulated Depreciation 30,000
Investments 20,000
Accounts Payable 25,000
Short-term Notes Payable 10,000
Long-term Notes Payable 50,000
Common Stock 100,000
Retained Earnings 55,000
Total 130,000 355,000
Prepare a classified balance sheet for Sky Blue Corporation at December 31. Based on this balance sheet, are the corporation's assets primarily financed by debt or equity?