Question

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Packard Company engaged in the following transactions during 2015, its first year in operations: (Assume all transactions are cash transactions.)
1) Acquired $1,400 cash from the issue of common stock.
2) Borrowed $870 from a bank.
3) Earned $1,050 of revenues.
4) Paid expenses of $340.
5) Paid a $140 dividend.
During 2016, Packard engaged in the following transactions: (Assume all transactions are cash transactions.)
1) Issued an additional $775 of common stock.
2) Repaid $535 of its debt to the bank.
3) Earned revenues of $1,200.
4) Incurred expenses of $540.
5) Paid dividends of $190.

The amount of total equity on Packard's 2015 balance sheet is
-$570.
-$2,110.
-$1,260.
-$1,970.

Answer 1

The total equity on Packard's 2015 balance sheet is $1,970, calculated by adding issued common stock and revenues, then subtracting expenses and dividends paid.

Step-by-step explanation:

To calculate the total equity on Packard's 2015 balance sheet, we need to consider the equity transactions of the company during its first year. Equity consists of initial capital plus retained earnings, which is calculated as revenues minus expenses minus dividends.

The transactions affecting the equity are:

• Issuance of common stock: $1,400 (increases equity)
• Revenues: $1,050 (increases equity)
• Expenses: $340 (decrease equity)
• Dividends: $140 (decrease equity)

Therefore, the total equity for the year 2015 business activities would be calculated as:

Equity = Issued Stock + Revenues - Expenses - Dividends

= $1,400 + $1,050 - $340 - $140

= $1,970