I have a simple accounting question?

Question

Company A
Dec 31, 2007

Assets $47,000
Liabilities ?

During the year 2007

Stock issuances $6000

Net Income $10730

Cash Dividends $3500


(Question) What is the equity amount on December 31, 2007?


(What I don't understand) If assets = Liabilities + equity, and I only know the asset, how can I answer this question?

Help Please?

Answer 1

Assets = Liabilities + Shareholders' equity
Shareholders' equity is not just share capital. It's share capital plus retained earnings.

Assuming this is the 1st year of operations, your share capital is $6,000 and your retained earnings is $7,230, so shareholders' equity is $13,230.

Since assets = $47,000, liabilities must be $33,770.

Answer 2

It's a trick. You don't really need to know how much is the liability.

We would assume that Company A has just commenced business in 2007, so that the $6,000 stock issuance would be its only equity. Then add $10,730 net income and subtract $3,500 cash dividend.

You would get the equity for December 31, 2007 of $13,230.

Bonus:
Liabilities for January 31, 2007
$47,000-$6,000=$41,000