Question

The Baldwin company currently has the following balances on their balance sheet: Assets $244,260 Common Stock $54,527 Retained earnings $46,136 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?

Answer 1

Answer:

The aggregate liabilities amounts to $40,337 for the next year

Explanation:

In order to compute the total liabilities, using the formula as:

Assets = Liabilities + Shareholders equity

where

Shareholders equity = Contributed Capital + Retained Earnings

Retained Earnings = Old Retained Earnings + Net Income - Dividends

Liabilities = Assets - Common stock - Retained Earnings

= $151,000 - $54,527 - $46,136 - ($20,000 - $10,000)

= $151,000 -  $54,527 - $46,136 - $10,000

= $40,337