Question

A company started the year with the following: Assets $106,000; Liabilities $36,000; Common Stock $66,000; Retained Earnings $4,000. During the year, the company earned revenue of $5,600, all of which was received in cash, and incurred expenses of $3,300, all of which were unpaid as of the end of the year. In addition, the company paid dividends of $1,600 to owners. Assume no other activities occurred during the year. The amount of liabilities at the end of the yEAR IS

Answer 1

The only transactions occurred during the year are for revenue, expenses and dividends. Dividends do not affect the liabilities as it relates to the stockholder's equity. Revenue is an income item. Expenses outstanding or unpaid will create the liabilities for the year. Unpaid expenses are $3300 at end of the year. So, liabilities at the end of the year will be:

Ending balance of liabilities = Beginning balance + Unpaid expenses

Ending balance of liabilities = $36000 + $3300 = $39300