MBA Math Sample Exercise

Accounting: Balance Sheet Update

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Exercise

Use the starting balance sheet and the list of changes to create an updated balance sheet and to answer the question.

Ruston Company Balance Sheet As of December 31, 2008 (amounts in thousands)

Cash	3,300	Liabilities	5,100
Other Assets	3,000	Equity	1,200
Total Assets	6,300	Total Liabilities & Equity	6,300

Between January 1 and March 31, 2009:

1. Cash decreases by $300,000
2. Other Assets decrease by $200,000
3. Equity increases by $400,000

What is the value for Liabilities on March 31, 2009?

Solution

Solution Commentary

(2:57)

Manual Solution

Begin by updating the starting balance sheet with the changes provided:

Ruston Company Balance Sheet As of March 31, 2009 (amounts in thousands)

Cash	3,000	Liabilities
Other Assets	2,800	Equity	1,600
Total Assets		Total Liabilities & Equity

Next, compute the sum of the left side of the balance sheet:

Ruston Company Balance Sheet As of March 31, 2009 (amounts in thousands)

Cash	3,000	Liabilities
Other Assets	2,800	Equity	1,600
Total Assets	5,800	Total Liabilities & Equity

Then, remembering the balance sheet equation, which states:

Total Assets = Total Liabilities + Total Equity

we have:

Ruston Company Balance Sheet As of March 31, 2009 (amounts in thousands)

Cash	3,000	Liabilities
Other Assets	2,800	Equity	1,600
Total Assets	5,800	Total Liabilities & Equity	5,800

Finally, we do a simple subtraction to compute the value we seek:

Ruston Company Balance Sheet As of March 31, 2009 (amounts in thousands)

Cash	3,000	Liabilities	4,200
Other Assets	2,800	Equity	1,600
Total Assets	5,800	Total Liabilities & Equity	5,800

Liabilities = $4,200,000

Peter Regan teaches decision science courses at Dartmouth’s Tuck School and Duke’s Fuqua School. He also teaches pre-term quantitative skills courses at Tuck and Cornell’s Johnson School. He created the MBA Math self-paced, online pre-MBA quantitative skills course covering finance, accounting, economics, statistics, and spreadsheets.