At the end of its first year of operations, Shapiro's Consulting Services reported net income of
$27,000. They also had account balances of: Cash, $16,000; Office Supplies, $3,200; Equipment,
$24,000 and Accounts Receivable, $8,000. The owner's total investment for this first year was
$15,000 and the owner withdrew $2,000 for personal use.
What are the total liabilities of Shapiro's Consulting Services at the end of the first year of operations?
A)$24,200
B)$11,200
C)$42,000
D)$27,000

Question

Quizplus · Accepted Answer

To find the total liabilities, we need to use the accounting equation: 
Assets = Liabilities + Owner's Equity

We already have the asset values: 
Cash = $16,000 
Office Supplies = $3,200 
Equipment = $24,000 
Accounts Receivable = $8,000

To find the owner's equity, we need to add the owner's investment and subtract any withdrawals: 
Owner's Equity = Owner's Investment + Net Income - Withdrawals 
Owner's Equity = $15,000 + $27,000 - $2,000 
Owner's Equity = $40,000

Now we can use the formula to find the liabilities: 
Assets = Liabilities + Owner's Equity 
$16,000 + $3,200 + $24,000 + $8,000 = Liabilities + $40,000 
$51,200 = Liabilities + $40,000 
Liabilities = $11,200

Therefore, the total liabilities at the end of the first year of operations is $11,200. Option B is the correct choice. To calculate the total liabilities, we need to subtract the owner's equity from the total assets. 
Total assets = Cash + Office Supplies + Equipment + Accounts Receivable = $16,000 + $3,200 + $24,000 + $8,000 = $51,200 
Owner's equity = Owner's investment - Owner's withdrawal + Net income = $15,000 - $2,000 + $27,000 = $40,000 
Total liabilities = Total assets - Owner's equity = $51,200 - $40,000 = $11,200

At the End of Its First Year of Operations, Shapiro's