Question

BE1-4 Use the accounting equation to answer each of the following questions. (a) The liabilities of Olga Company are $90,000. Common stock account is $150,000; divi- dends are $40,000; revenues, $450,000; and expenses, $320,000. What is the amount of Olga Company's total assets? (b) The total assets of Lafayette Company are $57,000. Common stock account is $23,000; dividends are $7,000; revenues, $50,000; and expenses, $35,000. What is the amount of the company's total liabilities? (c) The total assets of Dierdorf Co. are $600,000 and its liabilities are equal to two-thirds of its total assets. What is the amount of Dierdorf Co.'s stockholders' equity?

Answer 1

(1)

(A)

net profit = revenue - expenses - dividends

= $450000 - $320000 - $40000

= $90000

stockholders equity = common stock + net profit

= $150000 + $90000

Total assets = total liabilities + stockholders equity

= $90000 + $240000

= $330000

(B)

net profit = revenue - expenses - dividends

= $50000 - $35000 - $7000

= $8000

stockholders equity = common stock + net profit

= $23000 + $8000

= $31000

total liabilities = total assets - stockholders equity

= $57000 - $31000

= $26000

(C)

stockholders equity = total assets - total liabilities

= $600000 - ($600000 x 2/3)

= $200000

(2)

• Accounts receivable = asset
• salaries and wages payable = liability
• equipment = asset
• supplies = asset
• owners investment = part of stockholders equity
• notes payable = liability