Question

Given the following information about Oak & Elm Manufacturing Ltd, construct a balance sheet for the period ending 30 June 2018. As at 30 June 2018 the company had cash of $35,000, accounts receivable of $45,000, inventory of $150,000, property, plant and equipment of $350,000 and other assets of $15,000. It had accounts payable of $70,000, notes payable of $36,000, long-term debt of $225,000 and retained earnings of $149,000. What is the book value (original issue value) of the ordinary shares?

A. $446,000

B. $264,000

C. $151,000

D. $115,000

Answer 1

Balance sheet is the presentation of assets, liabilities, and share capital. It should be presented in a way so that the following equation is satisfied:

Assets = Liabilities + Capital

Balance sheet

As at 30/06/2018

Assets	Amount	Liabilities & capital
Current assets:		Current liabilities:
Cash	$35,000	Accounts payable	$70,000
Accounts receivable	$45,000	Notes payable	$36,000
Inventory	$150,000	Total current liabilities	$106,000
Total current assets	$230,000
Fixed assets:		Long-term debt	$225,000
Property	$350,000	Total liabilities (current + long-term)	$331,000
Other assets	$15,000	Capital:
		Retained earnings	$149,000
Total fixed assets	$365,000	Share capital (book value)	$115,000
		Total capital	$264,000
Total assets (current + fixed)	$595,000	Total liabilities & capital	$595,000

The capital appears as balancing figure with the help of the above equation.

Assets = Liabilities + Capital

595,000 = 331,000 + Capital

Capital = 595,000 – 331,000 = 264,000

Since the retained earnings is $149,000, the rest of the amount would be share capital.

Capital = $264,000 - $149,000 = $115,000

Answer: D