Question

Lexington Company engaged in the following transactions during Year 1, its first year in operation: (Assume...

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

  1. Acquired $4,900 cash from issuing common stock.
  2. Borrowed $3,150 from a bank.
  3. Earned $4,050 of revenues.
  4. Incurred $2,590 in expenses.
  5. Paid dividends of $590.


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

  1. Acquired an additional $1,450 cash from the issue of common stock.
  2. Repaid $1,965 of its debt to the bank.
  3. Earned revenues, $5,450.
  4. Incurred expenses of $3,130.
  5. Paid dividends of $1,780.

What was the amount of liabilities on Lexington's balance sheet at the end of Year 2?

Multiple Choice

  • $1,190.

  • $1,450.

  • ($1,965).

  • $1,185.

Homework Answers

Answer #1

Year 1: Balancesheet

Liabilities:

Common stock

$4,900

Borrowings

$3,150

Profit for the year (4,050-2,590)

$1,460

Less: Dividends paid

($590)

Total liabilities

$8,920

Assets:

Cash (4,900+4,050-2,590+3,150-590)

$8,920

Total Assets

$8,920

Year 2: Balancesheet

Common stock (4,900+1,450)

$6,350

Borrowings (3,150-1,965)

$1,185

Reserves (Opening) (1,460-590)

$870

Add: profit for the year (5,450-3,130)

$2,320

Less: Dividends paid

($1,780)

Total liabilities

$8,945

Assets:

Cash (8,920+5,450-3,130-1,780-1,965+1,450)

$8,945

Total Assets

$8,945

Liabilities = borrowings = $1,185

Ans) Option D $1,185 is correct

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