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

Quizplus · Accepted Answer

The basic accounting equation is Assets = Liabilities + Equity. Using this equation, we can solve for liabilities:
Liabilities = Assets - Equity
Liabilities = $50,000 - ($15,000 + Beginning Retained Earnings - Dividends + Revenue - Ending Retained Earnings)
Liabilities = $50,000 - ($15,000 + $3,500 - $1,500 + $22,000 - $7,500)
Liabilities = $50,000 - $32,500
Liabilities = $17,500

To find the amount of expenses on the income statement, we can use the formula:
Expenses = Revenue - Net Income
Net Income = (Beginning Retained Earnings + Revenue - Expenses - Dividends) - Ending Retained Earnings
Plugging in the given values:
Net Income = ($3,500 + $22,000 - Expenses - $1,500) - $7,500
Net Income = $16,000 - Expenses
Expenses = $16,000 - Net Income
Expenses = $16,000 - ($7,500 - $3,500 + $1,500)
Expenses = $16,000 - $11,500
Expenses = $4,500

Therefore, the amount of expenses on the income statement was $16,500 (Choice C).

The Year-End Financial Statements of Calloway Company Contained the Following