Lexington Company engaged in the following transactions during Year 1, its first year of operations. (Assume all transactions are cash transactions.)Acquired $6,000 cash from issuing common stock.Borrowed $4,400 from a bank.Earned $6,200 of revenues.Incurred $4,800 in expenses.Paid dividends of $800.Lexington Company engaged in the following transactions during Year 2:Acquired an additional $1,000 cash from the issue of common stock.Repaid $2,600 of its debt to the bank.Earned revenues, $9,000.Incurred expenses of $5,500.Paid dividends of $1,280.Total liabilities on Lexington's balance sheet at the end of Year 1 equal:
A) $1,000
B) $4,400
C) ($2,600)
D) $480

Question

Quizplus · Accepted Answer

The total liabilities at the end of Year 1 would be the amount borrowed from the bank, which is $4,400. The common stock issuance does not create a liability and the dividends paid are not a liability but rather a reduction of retained earnings. The revenues and expenses do not affect the liabilities.

Lexington Company Engaged in the Following Transactions During Year 1