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28 June, 06:28

A corporation was incorporated on January 1, Year 6, with $500,000 from the issuance of stock and borrowed funds of $75,000. During the first year of operations, net income was $25,000. On December 15, the corporation paid a $2,000 cash dividend. No additional activities affected equity in Year 6. At December 31, Year 6, the corporation's liabilities had increased to $94,000. In the corporation's December 31, Year 6 balance sheet, total assets should be reported at

A. $598,000

B. $600,000

C. $692,000

D. $617,000

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Answers (1)
  1. 28 June, 08:15
    0
    A. $598,000

    Explanation:

    Total assets = Net Capital Invested

    Net Capital invested = Equity + Long Term Debt + Net Income - Any dividends distributed = $500,000 + $75,000 + $25,000 - $2,000 = $598,000

    Note: The net increase in liabilities from $75,000 to $94,000 that is $19,000 is increase of current liabilities and not of capital invested.

    Therefore, that increase in liabilities will not be considered.

    Final Answer

    A. $598,000
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