Question

Dave's Burgers began the year with total assets of $420,000 and shareholders' equity of $82,500. During the year, the company earned $100,000 in net income and paid $35,000 in dividends. Total assets at the end of the year were $217,500. Total liabilities at the end of the year were:

a. $100,000
b. $132,500
c. $135,000
d. $182,500

Answer 1

Using the accounting equation to determine Dave's Burgers' end-of-year liabilities, we find that they are $70,000. This result is obtained after calculating the change in shareholders' equity and is not one of the given options, suggesting a possible error in the question.

Step-by-step explanation:

When considering the total liabilities at the end of the year for Dave's Burgers, the accounting equation can be used: Total Assets = Liabilities + Shareholders' Equity. Initially, Dave's Burgers had total assets of $420,000 and shareholders' equity of $82,500. By the end of the year, the company earned $100,000 and paid $35,000 in dividends. Therefore, the ending shareholders' equity can be calculated as the beginning equity plus net income minus dividends, which equals $82,500 + $100,000 - $35,000 = $147,500. The ending total assets were $217,500. To find the liabilities at the end of the year, we rearrange the accounting equation to Liabilities = Total Assets - Shareholders' Equity. Therefore, liabilities at year-end are $217,500 - $147,500 = $70,000. This is not one of the provided options, which indicates that there might be an error in the question or provided options.