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?
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Balance Sheets at Year-Ends 2006 and 2007
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Assets
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2006
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2007
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Changes
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Cash
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$700,000
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$901,000
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$201,000
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Accounts Receivable
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$500,000
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$535,000
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$35,000
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Inventory
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$780,000
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$825,000
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$45,000
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Prepaid Expenses
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$110,000
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$125,000
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$15,000
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Current Assets
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$2,090,000
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$2,386,000
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Property, Plant, & Equipment
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$2,450,000
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$2,875,000
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$425,000
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Accumulated Depreciation
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($685,000)
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($876,000)
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($191,000)
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Cost Less Depreciation
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$1,765,000
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$1,999,000
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Total Assets
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$3,855,000
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$4,385,000
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Liabilities & Owners' Equity
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Accounts Payable
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$350,000
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$385,000
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$35,000
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Accrued Expenses Payable
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$165,000
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$205,000
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$40,000
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Short-term Notes Payable
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$500,000
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$625,000
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$125,000
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Current Liabilities
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$1,015,000
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$1,215,000
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Long-term Notes Payable
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$1,000,000
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$1,125,000
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$125,000
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Owners Equity:
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Capital
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|
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Statement of Changes in Stockholders' Equity
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| |
Capital Stock
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Retained Earning
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Total Owners' Equity
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Balance at end of 2005
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$750,000
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$922,000
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$1,672,000
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Net Income - 2006
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$318,000
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Cash Dividends - 2006
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($150,000)
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Balance at end of 2006
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$750,000
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$1,090,000
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$1,840,000
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Capital Stock Issue
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$50,000
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Net Income - 2007
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$405,000
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Cash Dividends - 2007
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($250,000)
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Balance at end of 2007
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$800,000
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$1,245,000
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$2,045,000
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