Question

Lexington Company engaged in the following transactions during Year 1, its first year of operations. (Assume all transactions are cash transactions.)1) Acquired $3,200 cash from issuing common stock.2) Borrowed $2,300 from a bank.3) Earned $3,200 of revenues.4) Incurred $2,420 in expenses.5) Paid dividends of $420. Lexington Company engaged in the following transactions during Year 2:1) Acquired an additional $600 cash from the issue of common stock.2) Repaid $1,370 of its debt to the bank.3) Earned revenues, $4,600.4) Incurred expenses of $2,790.5) Paid dividends of $760.The amount of total assets on Lexington's balance sheet at the end of Year 1 was:

Answer 1

Answer:

Lexington Company

The amount of total assets on Lexington's balance sheet at the end of Year 1 was:

$5,860

Explanation:

a) Data and Calculations:

Cash from issue of common stock = $3,200

Cash from bank loan =                         2,300

Cash from revenue =                           3,200

Cash for expenses =                          (2,420)

Cash for dividends paid =                     (420)

Total assets =                                    $5,860

b) We can verify the total assets above by computing the liabilities and equity, which should be equal to the total assets according to the accounting equation.  The liabilities = $2,300 (bank loan).  The equity = common stock plus retained earnings ($3,200 + $3,200 - $2,420 - $420), which = $3,560.  The total of liabilities and equity = $5,860 ($2,300 + $3,560).  Therefore, assets = liabilities + equity ($5,860 = ($2,300 + $3,560).