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10 November, 06:29

Baltimore Company reports total assets and total liabilities of $266,000 and $110,000, respectively, at the conclusion, of its first year of business. The company earned $69,500 during the first year, and distributed $25,000 to shareholders as dividends. How much did shareholders initially invest in the business?

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  1. 10 November, 08:55
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    The $111,500 should shareholders initially invest in the business

    Explanation:

    In this question, we apply the accounting equation i. e.

    Total Assets = Total Liabilities + shareholder equity

    The computation of the invested amount by shareholder is shown below:

    Total assets = Total Liabilities + shareholder equity

    where,

    Shareholder equity = Shareholders invested + earnings - dividend paid

    Now put these values to the above formula

    So, the value would equal to

    $266,000 = $110,000 + Shareholders invested + $69,500 - $25,000

    $266,000 = $154,500 + Shareholders invested

    Shareholders invested = $266,000 - $154,500

    = $111,500
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