If the Notes Payable is $10,000, the December 31, 2011 cash balance is:
A) $60,000.
B) $160,000.
C) $30,000.
D) $20,000.

Question

Quizplus · Accepted Answer

The balance sheet equation is Assets = Liabilities + Owner's Equity. Since the only liability listed is Notes Payable for $10,000, the total assets must also be $10,000 (assuming no owner's equity is listed). Therefore, the cash balance would be the remaining amount after subtracting any other assets. Since we do not have any information about other assets, the December 31, 2011 cash balance is assumed to be $30,000 (which is the difference between the $10,000 liability and $40,000 total assets, according to the balance sheet equation).

If the Notes Payable Is $10,000, the December 31, 2011