Chapter 1, Problem 1.9BE

(a)

Accounting Equation: It is the mathematical equation that shows the relation between assets, liabilities and stockholders’ equity. It shows that assets balances the liabilities / stockholders’ equity.  It is expressed as:

Accounting Equation

Figure (1)

To determine

The amount of stockholders’ equity at the end of the year. Follow the below equation to determine the value of stockholders’’ equity:

Answer to Problem 1.9BE

$\text{Stockholders’ Equity}\text{=}\text{Assets}-\text{Liabilities}$

Total assets at the end of the year = $950,000 (1)

Total liabilities at the end of the year = $420,000 (2)

Determine the amount of stockholders’ equity at the end of the year.

$\begin{array}{c}\begin{array}{l}\text{Stockholders' equity }\\ \text{at the end of the year}\end{array}\}=\left[\begin{array}{l}\text{Total assets at the end of the year}-\\ \text{Total liabilities at the end of the year}\end{array}\right]\\ =\$950,000-\$420,000\\ =\$530,000\end{array}$

Working Notes:

Determine the amount of total assets at the end of the year.

$\begin{array}{c}\begin{array}{l}\text{Total assets at the}\\ \text{end of the year}\end{array}\}=\left[\begin{array}{l}\text{Total assets at the beginning of the year}\\ +\text{Total assets increased during the year}\end{array}\right]\\ =\$800,000+\$150,000\\ =\$950,000\end{array}$ (1)

Determine the amount of total liabilities at the end of the year.

$\begin{array}{c}\begin{array}{l}\text{Total liabilites at the}\\ \text{end of the year}\end{array}\}=\left[\begin{array}{l}\text{Total liabilites}\text{at the beginning of the year}\\ -\text{Total liabilites decreased during the year}\end{array}\right]\\ =\$500,000-\$80,000\\ =\$420,000\end{array}$ (2)

Explanation of Solution

To determine the total stockholder’s equity, first determine total assets and total liabilities at the end of the year. Total assets at the end of the year are determined by adding the total assets at the beginning of the year, and total assets increased during the year. Then total liabilities are determined by deducting the total liabilities at the beginning of the year, and total liabilities decreased during the year.

Conclusion

Therefore, the stockholders’ equity at the end of the year of Company M is $530,000.

(b)

To determine

The amount of total assets at the end of the year. Follow the below equation to determine the value of assets:

Answer to Problem 1.9BE

$\text{Assets}=\text{Stockholders’ Equity}+\text{Liabilities}$

Total stockholders’ equity at the end of the year = $230,000 (3)

Total liabilities at the end of the year = $600,000 (4)

Determine the amount of total assets at the end of the year.

$\begin{array}{c}\begin{array}{l}\text{Total assets at the}\\ \text{end of the year}\end{array}\}=\left[\begin{array}{l}\text{Stockholders' equity at the end of the year}+\\ \text{Total liabilites at the end of the year}\end{array}\right]\\ =\$230,000+\$600,000\\ =\$830,000\end{array}$

Working Notes:

Determine the amount of stockholders’ equity at the beginning of the year.

$\begin{array}{c}\begin{array}{l}\text{Stockholders' equity at}\\ \text{the beginning of the year}\end{array}\}=\left[\begin{array}{l}\text{Total assets at the beginning of the year}-\\ \text{Total liabilities at the beginning of the year}\end{array}\right]\\ =\$800,000-\$500,000\\ =\$300,000\end{array}$ (a)

Determine the amount of total stockholders’ equity at the end of the year.

$\begin{array}{c}\begin{array}{l}\text{Stockholders' equity }\\ \text{at the end of the year}\end{array}\}=\left[\begin{array}{l}\text{Stockholders' equity at the beginning of the year}-\\ \text{Decrease in stockholders' equity during the year}\end{array}\right]\\ =\$300,000\left(\text{a}\right)-\$70,000\\ =\$230,000\end{array}$ (3)

Determine the amount of total liabilities at the end of the year.

$\begin{array}{c}\begin{array}{l}\text{Total liabilites at the}\\ \text{end of the year}\end{array}\}=\left[\begin{array}{l}\text{Total liabilites at the beginning of the year}\\ \text{+Total liabilites increased during the year}\end{array}\right]\\ =\$500,000+\$100,000\\ =\$600,000\end{array}$ (4)

Explanation of Solution

To determine the total assets, first determine total stockholders’ equity and total liabilities at the end of the year. Total stockholders’ equity at the end are determined by deducting the beginning stockholders’ equity of the year and decreased stockholders’ equity during the year. Then total liabilities are determined by adding the total liabilities at the beginning of the year and total liabilities increased during the year.

Conclusion

Therefore, the total asset at the end of the year of Company M is $830,000.

(c)

To determine

The amount of total liabilities at the end of the year. Follow the below equation to determine the value of liabilities:

Answer to Problem 1.9BE

$\text{Liabilities}=\text{Assets}-\text{Stockholders’ Equity}$

Total assets at the end of the year = $720,000 (5)

Total stockholders’ equity at the end of the year = $410,000 (6)

Determine the amount of total liabilities at the end of the year.

$\begin{array}{c}\begin{array}{l}\text{Total liabilities at the}\\ \text{end of the year}\end{array}\}\text{=}\left[\begin{array}{l}\text{Total assets at the end of the year}-\\ \text{Stockholders' equity at the end of the year}\end{array}\right]\\ \text{=\$720,000}-\text{\$410,000}\\ \text{=\$310,000}\end{array}$

Working Notes:

Determine the amount of stockholders’ equity at the beginning of the year.

$\begin{array}{c}\begin{array}{l}\text{Stockholders' equity at}\\ \text{the beginning of the year}\end{array}\}=\left[\begin{array}{l}\text{Total assets at the beginning of the year}-\\ \text{Total liabilities at the beginning of the year}\end{array}\right]\\ =\$800,000-\$500,000\\ =\$300,000\end{array}$ (a)

Determine the amount of total assets at the end of the year.

$\begin{array}{c}\begin{array}{l}\text{Total assets at the}\\ \text{end of the year}\end{array}\}=\left[\begin{array}{l}\text{Total assets at the beginning of the year}\\ -\text{Decrease in total assets during the year}\end{array}\right]\\ =\$800,000-\$80,000\\ =\$720,000\end{array}$ (5)

Determine the amount of stockholders’ equity at the end of the year.

$\begin{array}{c}\begin{array}{l}\text{Stockholders' equity }\\ \text{at the end of the year}\end{array}\}=\left[\begin{array}{l}\text{Stockholders' equity at the beginning of the year+}\\ \text{Increase in stockholders' equity during the year}\end{array}\right]\\ =\$300,000\text{(a)}+\$110,000\\ =\$410,000\end{array}$ (6)

Explanation of Solution

To determine the total liabilities, first determine total assets and total stockholders’ equity at the end of the year. Total assets at the end of the year are determined by deducting the total assets at the beginning of the year and total assets decreased during the year. Then total stockholders’ equity at the end are determined by adding the beginning stockholders’ equity of the year and increased stockholders’ equity during the year.

Conclusion

Therefore, the total liability at the end of the year of Company M is $310,000.