Understanding Financial Statements: Calculating Equity, Assets, and Retained Earnings
Questions:
1) If the assets of a business are $ 480,000 and the liabilities are $ 160,000, how much is the equity?
2) If the equity in a business is $ 160,000 and the liabilities are $ 100,000, how much are the assets?
3) A company reported monthly revenues of $ 365,000 and monthly expenses of $ 225,000. What is the result of operations for the month?
4) If the beginning balance of retained earnings is $ 180,000, revenue is $ 85,000, expenses total $ 35,000, and the company declares and pays a $20,000 dividend, what is the ending balance of retained earnings?
Answers:
1) Equity = 320,000
2) Assets = $260,000
3) Result of operations for the month = $140,000
4) Ending balance of retained earnings = $210,000
Financial statements play a crucial role in understanding the financial health of a business. To calculate important figures such as equity, assets, and retained earnings, various components need to be considered.
1) Calculating Equity:
Equity is the difference between a company's assets and liabilities. In the given scenario, if the assets are $480,000 and liabilities are $160,000, we can calculate equity as follows:
Equity = Assets - Liabilities = $480,000 - $160,000 = $320,000
2) Determining Assets:
Assets can be calculated by adding liabilities and equity. With the equity being $160,000 and liabilities at $100,000, the assets would be:
Assets = Liabilities + Equity = $100,000 + $160,000 = $260,000
3) Result of Operations:
To find the result of operations for the month, we subtract the monthly expenses from the monthly revenues. With revenues at $365,000 and expenses at $225,000, the result is:
Result of operations for the month = $365,000 - $225,000 = $140,000
4) Ending Balance of Retained Earnings:
Calculate the ending balance of retained earnings by considering the beginning balance, net income, and dividend paid. With a beginning balance of $180,000, revenue of $85,000, expenses of $35,000, and a dividend of $20,000, the ending balance would be:
Ending balance of retained earnings = $180,000 + $85,000 - $35,000 - $20,000 = $210,000
Understanding these calculations is essential for investors, stakeholders, and management to analyze the financial performance and make informed decisions about the business.