Mofro's Computer Repair Shop started the year with total assets of $300,000 and total liabilities of $200,000. During the year, the business recorded $500,000 in computer repair revenues, $300,000 in expenses, and Mofro paid dividends of $50,000. Stockholders' equity at the end of the year was
A) $200,000.
B) $100,000.
C) $250,000.
D) $300,000.

Question

Quizplus · Accepted Answer

The formula for the balance sheet equation is: Assets = Liabilities + Stockholders' Equity.
At the beginning of the year, the company had $300,000 in assets and $200,000 in liabilities. This means that the stockholders' equity was $100,000 ($300,000 - $200,000 = $100,000).

During the year, the company recorded $500,000 in revenues and $300,000 in expenses, which resulted in a net income of $200,000. Since Mofro paid dividends of $50,000, the retained earnings (part of the stockholders' equity) increased by $150,000 ($200,000 - $50,000 = $150,000).

Therefore, the stockholders' equity at the end of the year is the sum of the beginning stockholders' equity ($100,000) and the increase in retained earnings ($150,000), which equals $250,000.

Mofro's Computer Repair Shop Started the Year with Total Assets