Golden Enterprises started the year with the following Assets $103,000: Liabillbes $33.000; Common Stock $63.000, Retained Earnings $7,000. Duri the year, the company earned revenue of $5.300, wil of which was received in cash, and incurred expenses of $3,350, all of which were unpaid as of t end of the year in addition, the company paid dividends of $1,300 to owners. Assume no other activities occurred during the year The amount of Golden’s abilities at the end of the year is
The Correct Answer and Explanation is :
To determine the liabilities of Golden Enterprises at the end of the year, let’s start by analyzing the given data and apply the basic accounting equation:
Accounting Equation:
[
\text{Assets} = \text{Liabilities} + \text{Owner’s Equity}
]
Given information at the beginning of the year:
- Assets: \$103,000
- Liabilities: \$33,000
- Common Stock: \$63,000
- Retained Earnings: \$7,000
During the year, the company:
- Earned revenue of \$5,300 (of which \$5,300 was received in cash)
- Incurred expenses of \$3,350 (all unpaid)
- Paid dividends of \$1,300 to owners
Step 1: Calculate the Change in Retained Earnings
The retained earnings will be adjusted for the revenue, expenses, and dividends:
[
\text{New Retained Earnings} = \text{Old Retained Earnings} + \text{Revenue} – \text{Expenses} – \text{Dividends}
]
[
\text{New Retained Earnings} = 7,000 + 5,300 – 3,350 – 1,300 = 7,000 + 5,300 – 4,650 = 7,650
]
Thus, the retained earnings at the end of the year is \$7,650.
Step 2: Determine the Ending Liabilities
The next step is to calculate the ending liabilities. The owner’s equity consists of common stock and retained earnings:
[
\text{Owner’s Equity} = \text{Common Stock} + \text{New Retained Earnings}
]
[
\text{Owner’s Equity} = 63,000 + 7,650 = 70,650
]
Now, apply the accounting equation for the end of the year:
[
\text{Assets} = \text{Liabilities} + \text{Owner’s Equity}
]
Since the total assets at the end of the year remain unchanged at \$103,000, we can rearrange the equation to solve for the liabilities:
[
\text{Liabilities} = \text{Assets} – \text{Owner’s Equity}
]
[
\text{Liabilities} = 103,000 – 70,650 = 32,350
]
Thus, the liabilities at the end of the year are \$32,350.
Conclusion:
At the end of the year, Golden Enterprises’ liabilities total \$32,350. This is calculated by adjusting the retained earnings for the revenue, expenses, and dividends, and using the accounting equation to balance the assets and owner’s equity.