Question

During the year, Crane’s total liabilities decreased by $100,000. The company reported net income of $80,000, sold additional shares for $140,000, and did not declare any dividends during the year. What is the amount of total assets at the end of the year?

Answer 1

During the year, Crane’s total liabilities decreased by $100,000. The company reported net income of $80,000, sold additional shares for $140,000, and did not declare any dividends during the year. What is the amount of total assets at the end of the year?

For answering this question, we should remember the basic accounting ( balance sheet ) equation

The balance sheet equation is

Total assets = Total liabilities + Total stock holders equity

We can understand that, any changes that comes in total liabilities and equity, a correspondent changes are occur in Total assets.

**Here the question says that Total liabilities are decreased by $100000, so the assets also decrease the same amount

**Next net income are transferred to retained earning, and retained earning is a part of stock holders equity, so the stock holders equity are increased by $80000 , because there is no dividend are declared. So in this effect the Total assets are increased by $80000

**In the case of additional share issue $140000, the stock holders equity are increased and also the effect in Total assets are increased by $140000

The net effect in Total liabilities + Total stock holders equity

Decreased by = 100000

Increased by = 80000 + 140000 = 220000

Net increased by = 220000 - 100000 = $120000

The net effect in Total liabilities + Total stock holders equity = $120000

So, the same amount are increased in Total assets

The amount of total assets at the end of the year = $120000 increased