Practice Brief Exercise 1 Use the accounting equation to answer each of the foll

Question

Practice Brief Exercise 1 Use the accounting equation to answer each of the following questions (a) The liabilities of Olga Company are $91,000. Common stock account is $156,000; dividends are $41,000; revenues, $444,000; and expenses, $330,000. What is the amount of Olga Company's total assets? Olga Company's total assets s (b) The total assets of Lafayette Company are $55,500. Common stock account is $19,000; dividends are $5,500; revenues, $49,000; and expenses, $36,500. What is the amount of the company's total liabilities? Company's total liabilities (c) The total assets of Dierdorf Co. are $600,000 and its liabilities are equal to two-thirds of its total assets. What is the amount of Dierdorf Co.'s stockholders' equity? Dierdorf Co.'s stockholders' equity

Explanation / Answer

a)

Retained earnings

= Revenues – Expenses – Dividends

= $444,000 - $330,000 - $41,000

= $73,000

Now, As per accounting equation,

Assets = Liabilities + Equity

So, Assets = Liabilities + Common stock + Retained earnings

= $91,000 + $156,000 + $73,000

= $320,000

b)

Retained earnings

= Revenues – Expenses – Dividends

= $49,000 - $36,500 - $5,500

= $ 7,000

Now, As per accounting equation,

Assets = Liabilities + Equity

So, Assets = Liabilities + Common stock + Retained earnings

So, Liabilities = Assets - Common stock - Retained earnings

= $55,500 - $19,000 - $7,000

= $ 29,500

c)

Total Assets = $600,000

Liabilities = 2 / 3 x Total Assets

= 2 / 3 x $600,000

= $400,000

Now, As per accounting equation,

Assets = Liabilities + Equity

So, Equity = Assets – Liabilities

= $600,000 - $400,000

= $200,000

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