Question

Baltimore Company reports total assets and total liabilities of $266,000 and $110,000, respectively, at the conclusion, of its first year of business. The company earned $69,500 during the first year, and distributed $25,000 to shareholders as dividends. How much did shareholders initially invest in the business?

Answer 1

The $111,500 should shareholders initially invest in the business

Step-by-step explanation:

In this question, we apply the accounting equation i.e.

Total Assets = Total Liabilities + shareholder equity

The computation of the invested amount by shareholder is shown below:

Total assets = Total Liabilities + shareholder equity

where,

Shareholder equity = Shareholders invested + earnings - dividend paid

Now put these values to the above formula

So, the value would equal to

$266,000 = $110,000 + Shareholders invested + $69,500 - $25,000

$266,000 = $154,500 + Shareholders invested

Shareholders invested = $266,000 - $154,500

= $111,500