Question

The Baldwin company currently has the following balances on their balance sheet:

Assets $238,840

Common Stock $54,392

Retained earnings $44,109

Suppose next year the Baldwin Company generates $20,000 in net profit, pays $10,000 in dividends, assets change to $151,000, and common stock remains unchanged. What must their total liabilities be next year?

A) 22,499

B)140,339

C)96,891

D)42,499

Answer 1

D)42,499

Working:

Step-1:Calculation of Stockholder's Equity next year
	Common Stock							$           54,392
	Retained Earning- Beginning						$ 44,109
	Add:Net Profit					$ 20,000
	Less:Dividend paid					$ 10,000
	Addition to retained earning						$ 10,000
	Retained Earning- Ending							$           54,109
	Total Stockholder's Equity							$       1,08,501
Step-2:Calculation of next year's total liabilities
	Total Assets							$       1,51,000
	Less:Total Stockholder's Equity							$       1,08,501
	Total Liabilities							$           42,499