Question

The Baldwin company currently has the following balances on their balance sheet: Assets $128,673 Common Stock $9,918 Retained earnings $63,731 Suppose next year the Baldwin Company generates $20,000 in net profit, pays $10,000 in dividends, assets change to $151,000, and common stock remains unchanged. What must their total liabilities be next year?

Answer 1

Answer:

Next year, Liabilities = $67,351

Explanation:

Current year,

Given,

Assets = $128,673

Common stock = $9,918

Retained earnings = $63,731

Hence, Liabilities = Assets - Owner's equity

Liabilities = $128,673 - $(9,918 + 63,731)

Liabilities = $55,024

Next year,

Given,

Assets = $151,000

Again, common stock = $9,918

Therefore, Liabilities = Assets - Owner's equity

Liabilities = $151,000 - (Common stock + Retained Earnings)

Liabilities = $151,000 - $(9,918 + 73,731)

Liabilities = $151,000 - 83,649

Liabilities = $67,351

Note: Retained earnings statement

Beginning balance                     $63,731

Add: Net profit                            $20,000

Less: Dividend                            $10,000

Ending retained earnings         $73,731