Question

During 2016, Millstone Company earned $6,500 of cash revenue, paid cash dividends of $1,000 to owners and paid $4,000 for cash expenses. Liabilities were unchanged. Which of the following accurately describes the effect of these events on the elements of the company's financial statements?

-Assets increased by $6,500.
-Assets increased by $1,500.
-Equity increased by $2,500.
-Assets increased by $5,500.

Answer 1

The effect of the events on Millstone Company's financial statements is that assets increased by $2,500.

Step-by-step explanation:

The effect of the given events on the elements of Millstone Company's financial statements can be explained as follows:

• The $6,500 of cash revenue earned would increase the company's assets and equity by $6,500.
• The $1,000 cash dividends paid to owners would decrease the company's equity by $1,000.
• The $4,000 paid for cash expenses would decrease the company's assets and equity by $4,000.
• Since liabilities remain unchanged, there is no impact on liabilities.

Therefore, the accurate description of the effect of these events is that assets increased by $2,500.