Question

Lexington Company engaged in the following transactions during Year 1, its first year in operation: (Assume all transactions are cash transactions)

1. Acquired $4,000 cash from issuing common stock.
2. Borrowed $2,700 from a bank.
3. Earned $3,600 of revenues.
4. Incurred $2,500 in expenses.
5. Paid dividends of $500.

Lexington Company engaged in the following transactions during Year 2: (Assume all transactions are cash transactions)

1. Acquired an additional $1,000 cash from the issue of common stock.
2. Repaid $1,650 of its debt to the bank.
3. Earned revenues, $5,000.
4. Incurred expenses of $2,950.
5. Paid dividends of $1,240.

What is the amount of total assets that will be reported on Lexington's balance sheet at the end of Year 1?

Multiple Choice

• $3,900.

• $1,300.

• $7,400.

• $7,300.

Answer 1

Answer : Option - D, $7,300

Explanation :

Calculation of the amount of total assets that will be reported on Lexington's balance sheet at the end of Year 1 :

Total Cash received = Acquired cash from issuing common stock + Borrowed from a bank + Earned revenues

= $4,000 + $2,700 + $3,600

= $10,300

Total cash paid = Incurred expenses + Paid dividends

= $2,500 + $500

= $3,000

Total cash available at the end of year 1

= Total Cash received - Total cash paid

= $10,300 - $3,000

= $7,300

Total assets only include cash balance. Hence, Total assets balance is $7,300.