A corporation had total assets of $40,000, total liabilities of $20,000, and total contributed capital of $8,000 at the beginning of the year. For the year, the corporation earned net income of $50,000 and paid cash dividends of $10,000. At the end of the year, the company had total assets of $80,000 and its total contributed capital remained at $8,000. At the end of the year, the corporation had total liabilities of:
A) $-0-
B) $20,000
C) $28,000
D) $32,000

Question

Quizplus · Accepted Answer

Total Liabilities = Total Assets - Total Contributed Capital - Retained Earnings.
At the beginning of the year:
Retained Earnings = $40,000 (Total Assets) - $20,000 (Total Liabilities) - $8,000 (Total Contributed Capital) = $12,000
During the year, the corporation earned net income of $50,000, paid dividends of $10,000 and did not issue any new stock. Therefore, the Retained Earnings at the end of the year would be:
Retained Earnings = $12,000 (Beginning balance) + $50,000 (Net income) - $10,000 (Dividends paid) = $52,000
At the end of the year:
Total Liabilities = $80,000 (Total Assets) - $8,000 (Total Contributed Capital) - $52,000 (Retained Earnings) = $20,000

A Corporation Had Total Assets of $40,000, Total Liabilities of $20,000