2 Assets and Liabilities
Statement of Financial Position Fundamentals
Jacqueline Gagnon
- First, My Turn!
- The following two companies, Gubba’s Grub (GG) and Kenny’s Kitchen (KK) have worked hard to each create their Statement of Financial Position for 20X2, which can be found below:
Gubba’s Grub
Statement of Financial Position
As at December 31, 20X2
| Assets | ||
|---|---|---|
| Current Assets: | ||
| Cash and Equivalents | 10,000 | |
| Short-Term Investments | 22,000 | |
| Accounts Receivable | 18,000 | |
| Inventory | 15,000 | |
| Total Current Assets | 65,000 | |
| Non-Current Assets: | ||
| PP&E: | ||
| Equipment (net) | 50,000 | |
| Buildings (net) | 200,000 | |
| Total PP&E | 250,000 | |
| Intangible Assets: | ||
| Patents | 8,000 | |
| Copyrights | 11,000 | |
| Total Intangible Assets | 19,000 | |
| Total Non-Current Assets | 269,000 | |
| Total Assets | 334,000 | |
| Liabilities & Equity | ||
|---|---|---|
| Liabilities: | ||
| Current Liabilities: | ||
| Accounts Payable | 7,000 | |
| Sales Tax Payable | 1,000 | |
| Other Accrued Liabilities | 15,000 | |
| Current Portion of Long-Term Debt | 25,000 | |
| Total Current Liabilities | 48,000 | |
| Non-Current Liabilities: | ||
| Long-Term Debt (net) | 50,000 | |
| Total Liabilities | 98,000 | |
| Equity: | ||
| Common Shares | 100,000 | |
| Preferred Shares | 10,000 | |
| Contributed Surplus | 6,000 | |
| Retained Earnings | 120,000 | |
| Total Equity | 236,000 | |
| Total Liabilities & Equity | 334,000 | |
Kenny’s Kitchen
Statement of Financial Position
As at December 31, 20X2
| Assets | ||
|---|---|---|
| Current Assets: | ||
| Cash and Equivalents | 15,000 | |
| Short-Term Investments | 35,000 | |
| Accounts Receivable | 20,000 | |
| Inventory | 23,000 | |
| Total Current Assets | 93,000 | |
| Non-Current Assets: | ||
| PP&E: | ||
| Equipment (net) | 125,000 | |
| Buildings (net) | 200,000 | |
| Total PP&E | 325,000 | |
| Intangible Assets: | ||
| Patents | 5,000 | |
| Copyrights | 13,000 | |
| Total Intangible Assets | 18,000 | |
| Total Non-Current Assets | 343,000 | |
| Total Assets | 436,000 | |
| Liabilities & Equity | ||
|---|---|---|
| Liabilities: | ||
| Current Liabilities: | ||
| Accounts Payable | 5,000 | |
| Sales Tax Payable | 1,000 | |
| Other Accrued Liabilities | 10,000 | |
| Current Portion of Long-Term Debt | 20,000 | |
| Total Current Liabilities | 36,000 | |
| Non-Current Liabilities: | ||
| Long-Term Debt (net) | 40,000 | |
| Total Liabilities | 76,000 | |
| Equity: | ||
| Common Shares | 130,000 | |
| Preferred Shares | 20,000 | |
| Contributed Surplus | 10,000 | |
| Retained Earnings | 200,000 | |
| Total Equity | 355,000 | |
| Total Liabilities & Equity | 436,000 | |
We can analyze the two companies using the ratios we learned above starting with Gubba’s Grub:
And then calculate for Kenny’s Kitchen:
Summary and Analysis
| Ratio | Gubba’s Grub | Kenny’s Kitchen |
|---|---|---|
| Current Ratio | 1.35 | 2.58 |
| Quick Ratio | 1.04 | 1.94 |
| Debt-to-Assets | 0.29 | 0.17 |
We can see that Kenny’s Kitchen is in a much more favourable position than Gubba’s Grub. Remembering for the current and quick ratio, a higher ratio is favourable due to the assets being in the numerator. Conversely, for the debt-to-assets ratio, a lower ratio is favourable due to the liabilities being in the numerator.
Your Turn:2—4: Ted’s Twinkies
Solution:2—4: Solution