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Prepare a classified balance sheet at December 31. Are the Sky Blue Corporation's assets financed primarily by debt or equity?

2 Answers

7 votes

Final answer:

The Sky Blue Corporation's assets are financed primarily by equity.

Step-by-step explanation:

The Sky Blue Corporation's assets are financed primarily by equity.

User Jim Counts
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8.2k points
4 votes

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?

User Karthik V
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