Presents the comparative balance sheet

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Reference no: EM13535080

Can the net worth of a business go negative? If so, explain briefly how this may happen and if it means that the business would have a negative cash balance.

Presents the comparative balance sheet of the business and to Figure 8-2 that presents its statement of changes in stockholders' equity. Suppose the business had paid $175,000 cash dividends (instead of $250,000) to stockholders in 2007. In this scenario, which dollar amounts in the business's comparative balance sheet would be different as the result of this one change?

Balance Sheets at Year-Ends 2006 and 2007

Assets

2006

2007

Changes

Cash

$700,000

$901,000

$201,000

Accounts Receivable

$500,000

$535,000

$35,000

Inventory

$780,000

$825,000

$45,000

Prepaid Expenses

$110,000

$125,000

$15,000

Current Assets

$2,090,000

$2,386,000

 

Property, Plant, & Equipment

$2,450,000

$2,875,000

$425,000

Accumulated Depreciation

($685,000)

($876,000)

($191,000)

Cost Less Depreciation

$1,765,000

$1,999,000

 

Total Assets

$3,855,000

$4,385,000

 

Liabilities & Owners' Equity

     

Accounts Payable

$350,000

$385,000

$35,000

Accrued Expenses Payable

$165,000

$205,000

$40,000

Short-term Notes Payable

$500,000

$625,000

$125,000

Current Liabilities

$1,015,000

$1,215,000

 

Long-term Notes Payable

$1,000,000

$1,125,000

$125,000

Owners Equity:

     

Capital

     

 

Statement of Changes in Stockholders' Equity

 

Capital Stock

Retained Earning

Total Owners' Equity

Balance at end of 2005

$750,000

$922,000

$1,672,000

Net Income - 2006

 

$318,000

 

Cash Dividends - 2006

 

($150,000)

 

Balance at end of 2006

$750,000

$1,090,000

$1,840,000

Capital Stock Issue

$50,000

   

Net Income - 2007

 

$405,000

 

Cash Dividends - 2007

 

($250,000)

 

Balance at end of 2007

$800,000

$1,245,000

$2,045,000

Reference no: EM13535080

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