Financial information related to the corporation of Ebony Interiors for February and March 20Y3 is as follows:
| | February 28, 20Y3 | March 31, 20Y3 |
| :---------------- | :------------------ | :--------------- |
| Cash | $157,200 | $266,800 |
| Accounts receivable | 89,100 | 102,400 |
| Supplies | 7,900 | 6,500 |
| Accounts payable | 40,300 | 43,500 |
| Common stock | 130,000 | 130,000 |
| Retained earnings | ? | ? |
a. Prepare balance sheets for Ebony Interiors as of February 28, 20Y3.
Ebony Interiors
Balance Sheet
February 28, 20Y3
| Line Item Description | Amount |
| :-------------------- | :------ |
| Cash | 157,200 |
| Accounts receivable | 89,100 |
| Supplies | |
Answer (2)
Calculate Total Assets: Total Assets = Cash + Accounts Receivable + Supplies = $157 , 200 + $89 , 100 + $7 , 900 = $254 , 200 .
Identify Total Liabilities: Total Liabilities = Accounts Payable = $40 , 300 .
Use the accounting equation to find Retained Earnings: Retained Earnings = Total Assets − Total Liabilities − Common Stock = $254 , 200 − $40 , 300 − $130 , 000 = $83 , 900 .
The Retained Earnings as of February 28, 20Y3, is $83 , 900 .
Explanation
Understanding the Problem We are given the financial information for Ebony Interiors as of February 28, 20Y3. Our goal is to prepare the balance sheet, which means we need to calculate the Retained Earnings. The fundamental accounting equation states that Assets = Liabilities + Equity. We will use this equation to find the missing value, Retained Earnings.
Calculating Total Assets First, let's calculate the Total Assets. Total Assets are the sum of Cash, Accounts Receivable, and Supplies. T o t a l A sse t s = C a s h + A cco u n t s R ece i v ab l e + S u ppl i es T o t a l A sse t s = $157 , 200 + $89 , 100 + $7 , 900 T o t a l A sse t s = $254 , 200
Identifying Total Liabilities Next, we identify the given Liabilities, which consist of Accounts Payable. T o t a l L iabi l i t i es = A cco u n t s P a y ab l e = $40 , 300
Identifying Common Stock We also know the value of Common Stock, which is part of the Equity. C o mm o n St oc k = $130 , 000
Calculating Retained Earnings Now, we can use the accounting equation to find the Retained Earnings. A sse t s = L iabi l i t i es + Eq u i t y A sse t s = L iabi l i t i es + C o mm o n St oc k + R e t ain e d E a r nin g s R e t ain e d E a r nin g s = A sse t s − L iabi l i t i es − C o mm o n St oc k R e t ain e d E a r nin g s = $254 , 200 − $40 , 300 − $130 , 000 R e t ain e d E a r nin g s = $83 , 900
Completing the Balance Sheet Finally, we can complete the balance sheet for Ebony Interiors as of February 28, 20Y3.
Ebony Interiors Balance Sheet February 28, 20Y3
Assets: Cash: $157,200 Accounts Receivable: $89,100 Supplies: $7,900 Total Assets: $254,200
Liabilities: Accounts Payable: $40,300 Total Liabilities: $40,300
Equity: Common Stock: $130,000 Retained Earnings: $83,900 Total Equity: $213,900
Total Liabilities and Equity: $254,200
Examples
Understanding balance sheets is crucial in the real world for assessing a company's financial health. For example, if you're considering investing in a company like Ebony Interiors, reviewing their balance sheet helps you understand their assets, liabilities, and equity. A healthy balance sheet indicates the company is managing its finances well, with enough assets to cover its liabilities and a solid equity position. This analysis aids in making informed investment decisions and assessing the overall stability and growth potential of the company.
The balance sheet for Ebony Interiors as of February 28, 20Y3 shows Total Assets of $254,200, Total Liabilities of $40,300, and Retained Earnings of $83,900. The equity section includes Common Stock of $130,000, leading to Total Equity of $213,900. This balance sheet indicates the company's financial health at that date.
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