ints 12 2006 Capsim Management Simulations Inc The Baldwin C

ints: 12 ©2006 Capsim Management Simulations, Inc. The Baldwin Company currently has the following balances on their balance sheet Total Assets Total Liabilities Retained Earnings$49,524 $253,096 $146,799 Suppose next year the Baldwin Company generates 44200 in net proft, pays $12,000 in dividends, total assets increase by $55,000, and total liabilities remain unchanged. What will ending Baldwins balance in Common Stock be next year? Select 1 Save Answer $143,973 $79,573 D $373,171 $504,419

Solution

Solution: Answer is 2nd option $79,573 Working Notes: Using Accounting equation Total assets = Total liabilities + Total owner\'s Equity Total assets = Total liabilities + Common stock + Retained earnings Next year total assets = Current total assets + increased value in next year =$253,096 + 55,000 =$308,096 Next year Total liabilities = 146,799 (same as old, since remain unchanged) Next year retained earnings = Current year retained earnings + ( next year net income - dividend paid) =49,524 +(44,200 - 12,000) =49,524 +32,200 =81,724 Hence, as per Accounting Equation Next year Common stock Next year Total assets = Next year Total liabilities + next year Common stock + next year Retained earnings $308,096 = 146,799 + Next year Common stock + 81,724 Next year common stock = $308,096 -146,799 -81,724 Next year common stock = 79,573 Please feel free to ask if anything about above solution in comment section of the question.