Lexington Company engaged in the following transactions during Year 1, its first year of operations. (Assume all transactions are cash transactions.)1) Acquired $3,600 cash from issuing common stock.2) Borrowed $2,500 from a bank.3) Earned $3,400 of revenues.4) Incurred $2,460 in expenses.5) Paid dividends of $460.Lexington Company engaged in the following transactions during Year 2:1) Acquired an additional $800 cash from the issue of common stock.2) Repaid $1,510 of its debt to the bank.3) Earned revenues, $4,800.4) Incurred expenses of $2,870.5) Paid dividends of $1,000. The amount of total assets on Lexington's balance sheet at the end of Year 1 was:
A) $1,100.
B) $6,840.
C) $6,580.
D) $3,860.

Question

Quizplus · Accepted Answer

The total assets on Lexington's balance sheet at the end of Year 1 can be determined using the accounting equation: Assets = Liabilities + Equity.
During Year 1, Lexington acquired $3,600 from issuing common stock (which increases equity), borrowed $2,500 from the bank (which increases liabilities), earned $3,400 in revenues (which increases equity), incurred $2,460 in expenses (which decreases equity), and paid dividends of $460 (which decreases equity). Therefore, the total equity at the end of Year 1 is $3,600 + $3,400 - $2,460 - $460 = $4,080.
Since there were no other liabilities, the total assets at the end of Year 1 must be equal to $4,080, which is the same as the equity. Thus, the correct answer is (C) $6,580.

Lexington Company Engaged in the Following Transactions During Year 1