Question

ABC Inc. was incorporated two years ago by issuing 5,000 shares of common stock at $400 each and borrowing $240,000 from a bank on a long-term note. Last year, ABC reported net income of $40,000 and paid a cash dividend of $1,800. Last year the company also borrowed an additional $320,000 from the bank. What was total assets on ABC's balance sheet at the end of the year last year?

Answer 1

Answer:

Total assets is   $2,598,200 .00

Explanation:

Using the accounting equation,assets = capital +liabilities

Common stock     (5000*$400)         $2000000

Borrowing                                             $240000

Net income                                            $40000

Dividends                                                ($1800)

Borrowing                                                $320000

Total Capital+liabilities                             2,598,200 .00

Alternative treatment:

Closing capital can be given as =opening capital +additional capital-dividends+net income

Closing capital =$2000000+0+40000-1800

Closing capital=$2038200

Liabilities=$240000+$320000

liabilities=$560000

Closing capital +liabilities=$2038200 +$560000=$2598200

Answer 2

Answer:

Total Asset = $2,598,200

Explanation:

Accounting equation : Asset = Equity + liabilities

Equity =common stock + retained earnings

          = ( 5000*$400) + (40000 - 1800)

          = $2,000,000 + 38200

          = $2,038,200

Liabilities = $240,000 + 320000

               = $560,000

Total Equity and Liabilities = 2038200 + 560000

                                            = $2,598,200

double entry principle helps to ensure that the accounting equation is done e.g when common stock is issued contra entry is bank if cash is received.