The year-end financial statements of Calloway Company contained the following elements and corresponding amounts: Assets = $50,000; Liabilities = ?; Common Stock = $15,000; Revenue = $22,000; Dividends = $1,500; Beginning Retained Earnings = $3,500; Ending Retained Earnings = $7,500. The amount of liabilities reported on the end-of-period balance sheet was:
A) $27,500.
B) $31,500.
C) $35,000.
D) $42,500.

Question

Quizplus · Accepted Answer

The equation for the balance sheet is Assets = Liabilities + Stockholders' Equity. We are given Assets = $50,000 and Common Stock = $15,000. We also know that beginning Retained Earnings + Revenue - Dividends - Ending Retained Earnings = Net Income. Net Income is not provided, but we can calculate it using the information given: 
$3,500 + $22,000 - $1,500 - $7,500 = $16,500. 
This means that Stockholders' Equity (Common Stock + Retained Earnings) is $31,500 ($15,000 + $16,500). 
Using the balance sheet equation and solving for Liabilities: 
$50,000 = Liabilities + $31,500 
Liabilities = $18,500. 
However, this is not an answer choice. We can determine the amount of Liabilities by subtracting Stockholders' Equity from Assets: 
Liabilities = $50,000 - $31,500 = $18,500, which matches answer choice A.

The Year-End Financial Statements of Calloway Company Contained the Following