Question

Parry's Accounting LLC began the year with total assets of $120,000 and shareholders' 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.

What was shareholders' equity at the end of the year?

a) $130,000

b) $110,000

c) $150,000

d) $135,000

Answer 1

Shareholders' equity at the end of the year was $40,000.

Step-by-step explanation:

Shareholders' equity at the end of the year can be calculated by subtracting total liabilities from total assets. We know that total assets at the end of the year were $215,000. To find total liabilities, we need to subtract total shareholders' equity at the beginning of the year from total assets at the end of the year. Given that shareholders' equity at the beginning of the year was $40,000, the calculation would be:

Total liabilities = Total assets - Shareholders' equity

Total liabilities = $215,000 - $40,000 = $175,000

Finally, to find shareholders' equity at the end of the year, we can subtract total liabilities from total assets:

Shareholders' equity at the end of the year = Total assets - Total liabilities

Shareholders' equity at the end of the year = $215,000 - $175,000 = $40,000

Therefore, shareholders' equity at the end of the year was $40,000.