Question

Saira's maid service began the year with total assets of $120,000 and stockholders' equity of $40,000. during the year the company earned $90,000 in net income and paid $20,000 in dividends. total assets at the end of the year were $215,000. how much are total liabilities at the end of the year?

Answer 1

Calculation of total liabilities at the end of the year:

To calculate total liabilities at the end of the year we need to calculate stockholders' equity at the end of the year as follows:

Stockholders' equity at the end of the year = stockholders' equity at the beginning of the year + Net Income – Dividends

Stockholders' equity at the end of the year = 40,000+90,000-20,000

Stockholders' equity at the end of the year = $110,000

Now using the accounting equation we can calculate total liabilities at the end of the year as follows;

Liabilities = Assets - Stockholders' equity

Liabilities = 215000-110000

Liabilities = 105000

Hence, total liabilities at the end of the year are $105,000