Question

At the end of the current year, the liabilities of Troy Corporation are $235,000. During the year, the assets of the business had decreased by $45,000, and the owners’ equity had increased by $58,000. Liabilities at the beginning of the year must have been:

Select one:

a. $280,000

b. $222,000

c. $248,000

d. $103,000

e. $338,000

Answer 1

As the end of the year the total liabilities where to 235,000 which is a result of of the decrease in the total assets by $45,000 and increase in the owner's equity by $58,000 therefore we will do a reverse calculation in calculating the beginning liabilities.

As the assets has decreased therefore the total liabilities would have been decreased from the opening balance of Liabilities and thus we would add back to the closing balance of Liabilities.

Also as the owners equity has increased which will also decrease the closing balance of Liabilities thus we would also add back the amount to the closing balance of Liabilities .

Therefore opening balance of Liabilities will be

= 235,000 + 45,000 + 58,000

= $338,000

Therefore the correct option is E