Chapter 1, Problem 1.5BE

To determine

Balance sheet

This is a financial statement that shows the available assets and claims to assets of a company at a particular point of time. Both the amount of assets and claims to assets remains always equal. Claims to assets are segregated into two categories, one is claims of creditors (liabilities) and the other is claims of stockholders (Stockholders’ equity).

This statement helps users to know about the creditworthiness of a company as to whether the company has enough assets to pay off its liabilities. The primary constituents of balance sheet are the assets, the liabilities and the stockholders’ equities, which are depicted below in the form of the mathematical equation.

Figure (1)

In balance sheet “total assets” and “total liabilities and stockholders’ equity” remains always in balance.

To Prepare: A balance sheet for Company B as at December 31, 2014.