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20 December, 06:55

The following information is provided for Sacks Company. Cash $ 12,000 Supplies 4,500 Prepaid rent 2,000 Salaries expense 4,500 Equipment 65,000 Service revenue 30,000 Miscellaneous expenses 20,000 Dividends 3,000 Accounts payable 5,000 Common stock 68,000 Retained earnings 8,000 What is the amount of total liabilities?

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  1. 20 December, 08:50
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    The amount of total liabilities is $5,000

    Explanation:

    In this question, we apply the accounting equation which is shown below:

    Total assets = Total liabilities + owner's equity

    where,

    Total assets = Cash + supplies + prepaid rent + equipment

    = $12,000 + $4,500 + $2,000 + $65,000

    = $83,500

    Owner's equity = common stock + ending retained earning balance

    where,

    Ending retained earning balance = Beginning retained earning balance + net income - dividend paid

    The net income = Service revenue - Miscellaneous expenses - salaries expense

    = $30,000 - $20,000 - $4,500

    = $5,500

    Now put these values to the above formula

    So, the ending retained earning balance would equal to

    = $8,000 + $5,500 - $3,000

    = $10,500

    And, the owner equity = $68,000 + $10,500 = $78,500

    So, the total liabilities would be

    = $83,500 - $78,500

    = $5,000
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