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Chapter 1 The Financial Statements Short Exercises (5 min.) S 1-1 1. Assets are resources controlled by the company as a result of past events and from which the company expects to receive future economic benefits. Shareholders’ equity represents the insider claims of a business, the claims to the assets held by the owners of the business. Assets and shareholders’ equity differ in that shareholders’ equity is a claim to assets. Assets must be at least as large as shareholders’ equity. Equity can be smaller than assets. 2. Both liabilities and shareholders’ equity are claims to assets. Liabilities are the outsider claims to the assets of a business. Shareholders’ equity represents the insider claims to the assets of the business. (5 min.) S 1-2 Total assets = Total liabilities + Shareholders’ equity $300,000 a) = $150,000 + $150,000 290,000 b) = 90,000 + 200,000 220,000 c) = 100,000 + 120,000
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