Use the following information to answer questions
The year-end financial statements of Calloway Company contained the following elements and corresponding amounts: Assets = $50,000;Liabilities = ?;Common Stock = $15,000;Revenue = $22,000;Dividends = $1,500;Beginning Retained Earnings = $3,500;Ending Retained Earnings = $7,500.
-Based on this information,the amount of expenses on Calloway's income statement was
A)$18,500.
B)$13,000.
C)$16,500.
D)$10,000.

Question

Use the following information to answer questions 
The year-end financial statements of Calloway Company contained the following elements and corresponding amounts: Assets = $50,000;Liabilities = ?;Common Stock = $15,000;Revenue = $22,000;Dividends = $1,500;Beginning Retained Earnings = $3,500;Ending Retained Earnings = $7,500.
-Based on this information,the amount of expenses on Calloway's income statement was
A)$18,500.
B)$13,000.
C)$16,500.
D)$10,000.

Quizplus · Accepted Answer

We can use the accounting equation: Assets = Liabilities + Stockholders' Equity, to find the amount of liabilities. 
$50,000 (Assets) = Liabilities + $15,000 (Common Stock) + Beginning Retained Earnings + Revenue - Expenses - Dividends + Ending Retained Earnings
$50,000 = Liabilities + $18,000 - Expenses - $1,500 + $7,500
Solving for Expenses, we get:
Expenses = $18,000 + Liabilities - $50,000 - $7,500 + $1,500
Expenses = $-16,000 + Liabilities
Since expenses cannot be negative, we know that Liabilities must be $16,500. Therefore, the amount of expenses on Calloway's income statement was $16,500.

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