Using the balance sheet, calculate XYZ Company's liabilities.
XYZ Company - Balance Sheet
Assets
Liabilities
Cash
$28,000
Notes
$28,000
Inventory
$27,000
Wages
$27,000
Property
$86,000
Owner's Equity
Stock
$32,000
Investment
$54,000
Liabilities = $[?]
Answer (1)
Identify the liabilities: Notes payable and Wages payable.
Sum the liabilities: $28 , 000 + $27 , 000 = $55 , 000 .
The total liabilities are $55 , 000 .
Therefore, XYZ Company's liabilities are $55 , 000 .
Explanation
Understanding the Problem We are given the balance sheet of XYZ Company and we need to calculate the total liabilities. The liabilities section lists two items: Notes payable and Wages payable. To find the total liabilities, we need to add these two values together.
Identifying Liabilities The balance sheet shows:
Notes payable = $28,000
Wages payable = $27,000
Calculating Total Liabilities To calculate the total liabilities, we sum the values of Notes payable and Wages payable: T o t a l L iabi l i t i es = N o t es P a y ab l e + Wa g es P a y ab l e T o t a l L iabi l i t i es = $28 , 000 + $27 , 000 T o t a l L iabi l i t i es = $55 , 000
Final Answer Therefore, the total liabilities of XYZ Company are $55 , 000 .
Examples
Understanding how to calculate liabilities from a balance sheet is crucial in assessing a company's financial health. For example, if you're considering investing in a company or providing a loan, knowing the total liabilities helps you determine the company's ability to meet its obligations. A high level of liabilities compared to assets might indicate financial risk, while a lower level suggests greater stability. This calculation is also essential for internal financial management, helping companies track and manage their debts effectively.
