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In: Accounting

The following accounts are taken from the financial statements of Facebook Inc. at September 30, 2016....

The following accounts are taken from the financial statements of Facebook Inc. at September 30, 2016. (Amounts are in millions.)

Accounts Payable $ 2,600
Accounts Receivable 3,100
Cash 6,000
Common Stock 15,700
Equipment 7,900
Income Tax Expense 790
Interest Expense 50
Notes Payable (long-term) 3,000
Prepaid Rent 1,100
Retained Earnings 38,400
Service Revenue 7,000
Short-Term Investments 20,100
Software 21,500

  1. Using the balance sheet, indicate whether the total assets of Facebook Inc. at the end of the year were financed primarily by liabilities or by stockholders' equity.

Solutions

Expert Solution

Calculation of total assets :

Accounts Receivable = $3100

Cash = $6000

Equipment = $7900

Prepaid Rent = $1100

Short term investments = $20100

Software = $21500

Total assets of firm = $3100 + $6000 + $7900 + $1100 + $20100 + $21500 = $59700

Calculation of total liabilities :

Accounts payable = $2600

Notes payable (long - term) = $3000

Total liabilities of firm = $2600 + $3000 = $5600

Calculation of Stockholders' equity :

Common stock = $15700

Retained earnings = $38400

Total stockholders' equity = $15700 + $38400 = $54100

As per accounting equation,

Assets = Liabilities + Stockholders' equity

Assets = $5600 + $54100 = $59700

Percentage of assets financed by liabilities = $5600/$59700 = 0.0938 i.e. 9.38%

Percentage of assets finnaced by stockholders' equity = $54100/$59700 = 0.9062 i.e. 90.62%

From the above calculation, we can see that ,9.38% of total assets is financed by liabilities and 90.62% of total assets is financed by stockholders' equity. So, total assets of Facebook Inc. at the end of the year were financed primarily by stockholders' equity.

ekkarill92 answered 2 years ago
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